The following document is an approximate, but not exact, transcript of the Operational Leaders podcast conversation between host Terrance J. O’Malley and guest Monel Amin.
Please support the production of this podcast by downloading the Monel Amin episode.
Welcome to the Operational Leaders podcast featuring leaders and innovators in the investment management industry, where we discuss the business of running the business with host and top industry executive Terrance J. O’Malley.
Terrance O’Malley 0:21
This week’s guest is the founder and chief executive officer of DiligenceVault, a digital diligence platform. The platform is the first two-sided digital diligence platform for investment managers, asset owners and allocators. She’s had a 20-year career that includes positions as a software engineer, a portfolio risk manager and an entrepreneur. Please welcome Monel Amin.
Monel Amin 0:45
Thank you, Tery. It’s a pleasure to be on this podcast with you.
Terrance O’Malley 0:47
Thank you for joining us today. You’ve had some big news recently, didn’t you? This past fall, you got a significant strategic investor joining you.
Monel Amin 0:55
That’s correct. So I think in the life of DiligenceVault, I think we have played it very slow, and very purposeful in the way we were growing. And once we’ve established a very good product market fit both on the two sides of the diligence platform, we decided to partner with the right investor and the right strategic investor, and Goldman Sachs was the right investor for us. And we were fortunate that they decided to partner with us on the journey forward.
Terrance O’Malley 1:20
Congratulations. So give us a little bit more background about your product and your company.
Monel Amin 1:24
Sure. So if you think about DiligenceVault, sometimes we say simplistically, it’s the dating dot com for the investment management industry. Because if you think about it, when investors and managers come together and when they’re thinking about partnering together and on an investment partnership, before the investment happens, there’s a lot of diligence that takes place. And then after the investment happens, there’s a lot of diligence that takes place in the form of monitoring. So a lot of that process today is extremely document driven, quite repetitive for both sides, and it results in exchanging a lot of data and information, but it’s storing documents. So it’s because it’s unstructured is kind of lost.
Also, in an industry, which is two sided, and many-to-many, so each investor has hundreds of managers and each manager could have hundreds of investors, there is a lot of recreating of the wheel each time. So with DiligenceVault, we’ve built a platform that sits between the two sides. It offers them a centralized platform to exchange information, but exchange information in a digital fashion and not just document sharing. And then we built a lot of workflow automation for both sides, and then give them both the ability to collaborate as a team and then work with the data that either they’re providing or they’ve collected. So simplistically, that’s what the platform is.
Terrance O’Malley 2:38
So you’re an innovator, you’re an entrepreneur, what made you see this problem and how did you think you could solve it?
Monel Amin 2:46
Well, inherently, my family has a very heavy bias in entrepreneurship. Right. So it was always as you can say that it’s in my blood to be an entrepreneur, But the idea was in my private, previous role at Citi[Bank]. So at Citi I had risk oversight for two distinct Citi businesses. One was where Citi was the GP or an asset manager managing money for external investors. And then the second was our own pensions and insurance businesses at Citi where we were the LP allocating to external managers. So, sitting in the same role, I had seen both sides of the business and I had participated in both sides of business for the diligence process. And I’d seen how just manually intensive and mind numbing it was. And there was a lot more time spent on administrative activities rather than actually value-added activities. So that was, I would say, the genesis of the idea, and I looked hard in the ecosystem to find a technology that would meet the needs for both sides and couldn’t. And hence I started DiligenceVault.
Terrance O’Malley 3:45
When did you start this, back in 2014? And when did you know that you had a product that was going to be really beneficial to the industry?
Monel Amin 3:54
I don’t think we still know that it is a perfect product. It’s a constant process of evolution. I mean, we got our first client in 2016. So it took us, I would say, a year and a half to build a product to validate the basic product. Talked to so many people in the industry to understand what their pain points are. And are we really solving for that? DiligenceVault, compared to 2016 and 2020, it’s a completely transformed product. And it’s a constant process that we employ. And getting a bit technical. I mean, we actually release code once every week. So it’s a constantly evolving product.
We have over 10,000 users on the platform, so we get a ton of feedback from our paid clients as well as their investment counterparts. And we are very, very careful about taking all of that feedback and pretty diligent about making sure that we capture the essence of that feedback into the platform. So do we have a perfect product yet? Probably not. But we are working in that direction.
Terrance O’Malley 4:52
What’s the biggest difference between the product four years ago in the product today?
Monel Amin 4:57
I would say three things. One, the product four years ago is what we called the minimum viable product. Right? What is it that people are willing to pay money for? So that was one. Two, it was a product, which was functional, but I wouldn’t say it was institutional. And then three, it was a product, where we had to spend a lot of time educating the audience about what the product is and what the benefits are. Because it wasn’t like we were coming up with a system that already existed in the ecosystem, and we were just building a better version of it. We had to spend a lot of time educating the market on it. So today, it’s much more robust from a technology perspective, from a functionality perspective, from a usability perspective. It’s a much more institutional product. And then it’s a product that people need and want. So it’s not like us having to educate people, they actually come to us saying this is what we need, because they’ve heard about us, they recognize the need themselves. So I think those are three different aspects of it.
Terrance O’Malley 5:53
One of the critiques of the operational due diligence process is the time-consuming nature, also the nuances that each allocator tends to have with their own approach. Talk a little bit about how your product tries to solve for some of those challenges.
Monel Amin 6:11
Sure. So I would say it is a two-sided challenge in the sense that if you think about the allocators. If the allocators have the power, if they are large allocators, they would dictate what they would need from the managers and it will be bespoke in the allocator’s format. If the asset manager has the power or the hedge fund or private equity fund has a power, then they will dictate the format, as in, they will send their standard materials and say this is what we actually provide. So in either of the scenarios, one side is suffering, and one side is working hard to make it all normalized and usable and spending hours into it. So at DiligenceVault, what we’ve done is we’ve tried to build an equalizer between both sides. So instead of allocators sending out questionnaires to the managers and managers recreating this process for each and every request, we’ll built a lot of technology for the managers where they can repurpose a lot of their content. They can have strict audit control around it. And they can also mimic all of their current processes internally, so that the whole process is efficient, so there’s a massive time saving.
Similarly, we’ve also partnered with a lot of the industry providers, so AIMA for hedge funds, ILPA for private equity, ESG UNPRI questionnaires, as well as INREV for real estate, right. So to the extent we can bring both sides to start using the standards, they can use those questionnaires on the platform digitally. But the reality is, right, even though the standards out there, both allocators and asset managers may want to tweak it, to make it work for them. And view both the functionality to allow both sides to do that. So one is we can build the technology but second is the industry partnerships to make sure that we are all moving in the right direction of efficiency, better transparency of data. And then saving times for both sides.
Terrance O’Malley 8:03
And then I suppose that there is a functionality to this that allows allocators, or managers as well, to perform some analytics on the responses they’re getting or the questions they’re getting.
Monel Amin 8:14
That is correct. Going back to the beginning of DiligenceVault. So I’m an engineer by training, a risk manager on the job. So I think I’m quite analytical in my thinking. So when we started DiligenceVault, we’re like, okay, let’s just build an analytical machine that will streamline this entire process. During the initial two years or one and a half years of talking to the industry, we realized people weren’t ready for analytics. They were so busy with the mundane manual tasks that we decided to almost pivot the platform to make it productive first, and then predictive or analytical next. So people still want the ability to save their time and spend their time on more value-added activity, which would involve analytics, rather than just grunt work of data wrangling and copy and paste and back and forth. Right. So I think that’s what we’ve solved.
And then now, when people have more time, and more free time and more data available to them in a structured fashion, both sides can analyze it. So on the investor side, they can analyze across their entire portfolio. They can analyze what questions they’re asking that are not getting the answers and what they’re asking that are getting better answers. What are new topics that are coming up? Same thing with managers. They can also do a lot of that. And they can also work on the quality of their answers, rather than just copying and pasting answers from x different resources that they keep it on their shared drives.
Terrance O’Malley 9:32
So in addition to the document intensive process that you’ve addressed, can you talk a little bit about the importance also of the onsite or the interpersonal aspects that remain to operational due diligence.
Monel Amin 9:46
Yes, certainly. So I think one of the things, how we see allocators taking advantage of a platform that that is ultimately making those onsite meetings more productive, is they would use the platform to collect a lot of factual data. Or they would collect data that would trigger any follow ups during the on-site beforehand. So it’s an efficient process. They can collect all the data on the platform. We have the functionality where they can build business rules to flag certain types of responses or score it. So when they get those responses, they are much better prepared for their on-site to dig into the qualitative aspects of it rather than confirming what the fees are or confirming who the service providers are. That can all be done through the platform. So they can focus on the nuances and the key risk factors. So I think that’s how people are evolving. using technology to guide their on-site diligence.
Terrance O’Malley 10:38
You talked a little bit about the efficiency. You talked a little bit about the allocators and the managers’ side. Do you see this product as benefiting one side more than the other or being more useful to the other?
Monel Amin 10:49
Right now, we’ve seen both sides benefiting from it. So we have clients on both sides. So on the investor side and these are some of the clients sharing with us as they have access to data they never had before. So what we say is DiligenceVault helps them reduce time to data. And on the manager side, DiligenceVault helps them reduce the time to revenue.
So there’s a lot of fee compression going on in the asset manager side, and the need for data and the need for RFIs, and DDQs are just going up double digit percent, year over a year. Working in that environment, responding to your investors and providing the right client service is a lot of challenge. And also if you’re going off for new business, and you want to be as efficient as you can. So because there is a benefit for both sides, it is an equal balance in the system. Having said that, we started first with the allocators. Right. So that was our first user group that became clients and then we extended into the asset managers as well.
Terrance O’Malley 11:44
So you’re using technology to solve a very specific problem. What are you seeing more generally? If you broaden that out and you thought about the industry more as a whole and talked about technology? What are some of the things that you’re seeing that impress you in terms of some developments in other areas?
Monel Amin 12:00
When we take a broader look at technology, right? So there are a couple of themes that are coming up. One of the most surprising things about our industry is that our industry invests billions and trillions of dollars in ideas and themes. A lot of it is in technology as well. But as an adopter of technology, it’s been quite far behind a lot of other industries. Right. So we are seeing the industry play a lot of catch up. If you think about the asset managers themselves in their front office, they were the first ones to adopt technology. And then now it’s trickling into the back office and then ultimately into the client facing side of the business as well. Similarly, allocators I think it started with a front office, but more towards, I would say portfolio management type of systems. But the other things were suffering. But now it’s all playing catch up. Right. So I think that one whole team is just playing catch up with the new technology that’s available. So that’s clearly one thing.
The second is, especially on the admin and custody aspects, people are still in the early stages of evaluating how blockchain could help, or even for auditing, and those areas as well.
We ourselves use some form of AI. But we do see there’s a lot of buzz around that as well. And AI, either you invest in that technology or you use it to invest, or you use it to streamline your own process and stuff, right. So I think different firms are at different levels of maturity. One thing that we have seen, and the reason you will not find AI anywhere on our website is when we started telling people that we actually use natural language processing for some of the functionality that we provide, people expect magic. They expect hundred percent result. The biggest problem with AI and scaling is the edge cases. And given this entire industry is so custom, there are a lot of edge cases. So even if you have 85% efficiency, it’ll work for most of the use cases, but it will not work for some of the others and will require some tweaks. But our industry has pretty high standards. And they would want perfection all the time. So we’re very careful to use AI and it’s become quite buzzy as well. So we don’t even lead with that anymore. We’ve learned from that is we don’t talk about AI. But these are the three trends that we see.
Terrance O’Malley 14:16
You wrote a white paper about this or a blog. Is there a super solution on the horizon that’s going to take care of all your automation issues?
Monel Amin 14:24
So I would say, yes, there’s a super solution. But I would argue it’s not a single firm. I think what we do believe is that partnerships and alliances and integrations with best in class solutions in each of their categories is probably the right solution. Because it is a complex industry. And having a single provider give the best possible solution for everything, it’s nearly impossible, right? I mean, you can put in all the resources and money but it’s just not possible because it’s just a very complex industry and so many asset classes and so many fund structures out there. So many processes out there. So I think the way forward is alliances and integrations,
Terrance O’Malley 15:04
I think about that as well. And there are a lot of different processes that go into running a middle and back office. And I suppose each of those could have some form of technology enhancement. But it would seem kind of challenging for one firm to tackle all those and do it well.
Monel Amin 15:24
Terrance O’Malley 15:25
So now we’ve talked a lot about automation and how you can save time and be more efficient. Are there certain areas, certain functions that you think have to remain part of the human process?
Monel Amin 15:36
Absolutely, yes. What technology can do is automate some of the mundane and repetition aspects of the investing or the investment diligence or even responding to it. For example, right, if you’re an asset manager, and you get a question saying, “How do you manage your counterparty risk?” that’s a standard question that a technology platform can help respond to rather than human being trying to spend their time on it.
But if a question comes in and says, “Okay, where do you think you’re going to outperform in a market such as the last two weeks where there’s been massive sell offs because of fears overpowering the markets?” Now a response to something like that would require human touch, because it involves a lot more judgment. Similarly, as an asset allocator collecting the objective factual data should be all automated away. But on-site visits, talking to the investment team and talking to the operational team as part of the operational due diligence, or even understanding what their stance is on diversity and ESG going forward. All of that requires a lot of judgment in terms of understanding what the answers are, how do they correlate with what the ODD team is seeing and working as a team together as an investor to come to an investment decision. So all of that, the judgment, the human touch, the collaboration is not going to go away. I think technology and automation is just going to replace the mundane. That’s just our belief. We’re not here to completely take over the entire process.
Terrance O’Malley 17:05
You mentioned a few minutes ago that you thought that there was a little bit of a lag in this business adopting some automation. What do you think some of the hurdles are to that? Is that sort of that people have legacy systems that they just spent a lot of money on that they don’t want to get rid of?
Monel Amin 17:18
So I think there is an element of sunk cost for sure. So that’s one. If you spend so much money on something, you don’t want to get rid of it. Change Management is the biggest risk that we see. I mean, when people ask us who is our competition, we say it’s Excel and apathy. And that’s what we do see, right. It’s usually a response to what we see in the industry. And then third is a new phenomenon that’s emerging. There’s so much technology, innovation that’s happening in the industry. There is an element of paralysis by analysis on the buyer’s perspective. Because if you think about it, a technology half-life used to be three and a half, four years. Now it’s shrinking so much. So people are afraid of making the wrong choice or betting on the wrong horse, and then realizing it doesn’t really pan out.
Or, one of the things that we have also observed with a lot of new players that are coming to the market, they are borrowing the pricing philosophy from general purpose technologies that have been quite popular on the West Coast, for example. But they are borrowing this pricing philosophy, which are not meant for enterprise clients (which is what our industry is pretty much). And applying for an enterprise client where the sales cycles are long, and people require a lot of implementation, people require pretty high client service. So it creates an unsustainable business model. So even though you may have started using the product, but if you don’t get the client service, or you don’t get the right amount of enhancements on the product, because the provider never charged the right amount of money for it, to invest in the product. So those are the things that we are seeing. So if someone has had a bad experience, they’re not going to trust another one again. So that whole transition is also giving people a pause.
Terrance O’Malley 18:55
So there is a concern I suppose that you buy a product and the company who created it is going to become obsolete quickly.
Monel Amin 19:03
Correct. And I think that also goes back to why we took funding when we took funding. We wanted to wait until we knew we validated our thesis, our product. We’ve had some really marquee clients. But as we are growing, we wanted to eliminate that risk factor. And we wanted to partner with someone who would not present conflicts, but also give us the runway to grow the company.
Terrance O’Malley 19:24
Right. And I imagined that would give your potential clients some comfort that you are going to be here for the long term.
Monel Amin 19:32
Terrance O’Malley 19:33
So that’s a good segue into maybe the last area we talk about. Its where do you see the future of automation and how it impacts this business?
Monel Amin 19:43
So I would say if you think about, say, this new decade we are looking at. A lot of the automation would come in the operational part of the business. There is a lot of automation that would come in getting access to the right data. There is a lot of automation that’s going to come in the ability to analyze that data, right? We’re in three different places that the automation can help with. And it could be in different functional areas of the business as well.
There’s a lot of automation that’s also going to come between systems talking to one another. That is another big break point in the industry right now – is your one process can be automated, and then a second process can be automated elsewhere. But then the two sides don’t talk to one another. Right. So there are so many avenues to improve our current status quo. And there are so many solutions out there. It’s just a matter of building the right, I would say a necklace of all the solutions that make sense for each user on the platform or any of the platforms that they adopt.
Terrance O’Malley 20:40
Alright, so I have to ask the question. If there is a lot of fee pressure on the industry, is there going to be enough profit for potential solutions companies to make it worth their while to engage in developing product in this business?
Monel Amin 20:54
The answer is yes. And I think it depends on what business model people employ. So the biggest, I would say, beneficiaries are the existing providers and existing platforms, and existing service providers. [That] would be the custodians, the admins, because they already have the base built, right? If they can provide the efficiency and the add-on, the incremental cost is not that high. But then the beneficiaries can also benefit from some of the reduction in cost.
The second is, if the providers are very focused on building a product, they will spend less time in implementation and customization. So that would add to their margin, and they can pass on parts of it to the clients as well. But if providers continue to down the path of, you know, we have this one product, but yes, we can customize it for you Client A and then we can customize it for you Client B – which has been the model and this is what the industry has been demanding – well that puts in and do cost burden on both sides. And then puts pressure on the margin as well. So I think the product-ization is the next big theme that we see work. And it’s incredibly hard to maintain that product focus because we get dragged in multiple different directions when people want us to build this custom x and custom Y. And they’re like . . . we’re going to pay you for it. But then you have to have a product police internally, that polices all of these things and says “how many other people are going to use this before you build it because we also want to make sure that we continue to provide a good experience.”
And we do see a lot of companies also adopting that [product approach], which is actually quite interesting to see that a lot of people are very, very focused on building a product. So then they can preserve the margins for them and their clients.
Terrance O’Malley 22:30
Thank you. This has been a really fascinating discussion. It’s a really interesting product. It’s going to save a lot of people a lot of time. If people want to know more about it, where can they learn?
Monel Amin 22:41
On our website, www.diligencevault.com.
Terrance O’Malley 22:43
Okay, well, thank you very much. It’s going to be an interesting decade coming up.
Monel Amin 22:48
Thank you very much, Tery