Over the last decade, we have been witnessing a degrading quality of large institutional investors including their own investment research and outsourced due diligence. That trend has become obvious after collapsing the giants like Lehman Brothers or Bear Stearns; however, its causes have never been investigated in details.
Though we may find tons of articles attributing the finance meltdown to an abstract subprime mortgage crisis or a market cyclicity, the press seems to be reluctant to dip further to the bottom and analyze the real reasons. We believe that the devastating trend was triggered by one major reason - an incredible institutional incompetence across all levels, from the top management down to risk analysts and portfolio managers.
While it is not our aim to analyze the reasons created the favorable environment supporting and protecting such incompetence, we can only state the facts based on our own experience of dealing with hundreds of institutions of all calibers, including top investment banks, superannuation funds and medium investment houses. Based on the given facts, we have to adopt the sensible approach to the due diligence frameworks and a common perception of institutions as safe havens: