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An investment due-diligence exception and escalation register records missing evidence, interim controls, decisions, owners and expiry dates.
An investment due-diligence exception and escalation register turns an incomplete review into an explicit decision. It records what is missing or outside policy, why the investment team wants to proceed, which interim controls apply, who approved the exception and when it must be resolved. Silence or an unchecked box is not an exception process.
The register should not make incomplete due diligence routine. Its purpose is to expose departures early, direct them to the right authority and prevent a temporary concession from becoming permanent without review.
Anchor the register to approved policy
The MAS information paper on fund management risk practices discusses supervisory observations across investment processes, including investment due diligence and ongoing monitoring. A fund manager should apply its own legal obligations, licence conditions, mandate and approved policies to the facts.
List the due-diligence areas required by policy for the asset type. These may cover commercial, financial, legal, tax, regulatory, sanctions, anti-money laundering, operational, technology, valuation, environmental or reputational matters. Do not force every asset into the same checklist.
Define which departures may be accepted and which stop the investment. A missing routine document is different from an unresolved ownership concern, prohibited investment or inability to value the asset.
Open an exception when the fact appears
Create the record as soon as a reviewer identifies missing evidence, a policy departure or an unresolved adverse finding. Do not wait until the investment committee meeting. Early visibility gives the team time to obtain evidence or change the transaction.
Name the fund, transaction, counterparty, due-diligence area and policy requirement. Describe the fact without soft language. If financial statements are unavailable, say which period is missing and why. If a background finding is unresolved, state the source and question.
Attach the request made, response received and searches completed. Record what remains unknown. An exception is more useful when a reviewer can see the work already performed.
Separate missing evidence from adverse evidence
Missing evidence means the team cannot yet confirm a fact. Adverse evidence means information exists that may change the investment decision. The escalation should distinguish them because the response will differ.
For missing evidence, the team may seek another source, narrow the investment, impose a condition or delay completion. For adverse evidence, the team should assess severity, credibility, legal implications and whether the mandate permits proceeding.
Do not treat a counterparty assurance as independent verification when policy requires another source. Preserve both the assurance and the remaining limitation.
Assess impact on the fund and investors
Explain how the exception affects expected return, downside, liquidity, valuation, concentration, control rights and exit. Consider whether it creates a conflict or changes disclosures made to investors.
Review transaction size against fund net asset value, exposure limits and related positions. A small percentage can still be material when the issue affects title, legality, sanctions or the ability to realise the asset.
Identify who bears the risk. A warranty, escrow, price adjustment or insurance policy may reduce loss but does not necessarily resolve the underlying due-diligence finding.
Select a proportionate interim control
Possible controls include a condition before signing or funding, a lower commitment, staged drawdown, withheld amount, additional approval, independent report, enhanced monitoring or contractual information right. The control must address the specific uncertainty.
State the evidence that will close the item. A phrase such as monitor closely is too vague. Name the document, test, confirmation or event required and the person who will verify it.
Set an expiry. If the matter cannot reasonably close after investment, set a review frequency and defined decision points. Do not use a distant date to avoid current accountability.
Send the decision to the correct authority
Match escalation to the manager’s delegations. The portfolio manager may resolve a minor documentation item, while compliance, risk, valuation committee, investment committee or board involvement may be needed for more serious departures.
Record conflicts and recusals. A deal sponsor should not be the only person approving an exception that protects the deal timetable. Give independent functions enough information and time to challenge the proposal.
The Securities and Futures Act 2001 provides the statutory setting for regulated fund management. Formal legal questions should be referred to qualified counsel. The register documents the operating decision; it does not replace legal advice.
Use fields that support review
| Field | What it should show | Control question |
|---|---|---|
| Requirement | Policy or mandate item | What rule is not satisfied? |
| Finding | Missing or adverse evidence | What is known and unknown? |
| Impact | Fund and investor consequence | Why does it matter? |
| Response | Condition or interim control | Does it address the finding? |
| Authority | Decision-maker and date | Was the delegation correct? |
| Closure | Owner, evidence and expiry | How will closure be proved? |
Review the register after investment
Assign a central owner to chase due dates and report overdue items. Portfolio teams remain responsible for the facts, while risk or compliance may monitor the process independently. Agree the division clearly.
Bring material open exceptions into periodic investment monitoring. Reassess the valuation, limits and investor disclosures when new information arrives. Escalate an expired control instead of silently extending it.
Close an item only when the specified evidence has been checked by the responsible reviewer. Record the conclusion and any follow-up. Keep rejected investments and withdrawn exceptions as part of the decision history.
Apply the record across a VCC structure
For a Singapore VCC, identify the relevant sub-fund and avoid treating exposure as a general umbrella matter. The ACRA VCC guidance explains the umbrella and sub-fund structure and required appointments.
Where multiple funds consider the same asset, record allocation, different mandate requirements and information sharing. One fund’s approval does not automatically approve an exception for another.
The Singapore VCC launch readiness guide is the pillar cornerstone. The fund-manager investment-process review covers the wider supervisory themes. The new fund launch approval guide covers product approval. The Funds, VCCs and Cross-Border Structures hub connects the library.
The investment due-diligence exception and escalation register should make discomfort visible, not make it disappear. A good record identifies the departure, places the decision with the right people and keeps the unresolved risk in view until evidence supports closure.