In a non-control deal, an investor cannot fire management. Therefore, the primary diligence focus must shift from the business itself to the founder's character and the potential for a strong partnership, as this relationship is the ultimate determinant of success.

Backing independent sponsors on a deal-by-deal basis is more than an investment strategy; it is an extended due diligence process. This approach provides deep, real-time insights into a manager's problem-solving skills under pressure, offering transparency that is impossible to achieve before a Fund I commitment.

During due diligence, it's crucial to look beyond returns. Top allocators analyze a manager's decision-making process, not just the outcome. They penalize managers who were “right for the wrong reasons” (luck) and give credit to those who were “wrong for the right reasons” (good process, bad luck).

A powerful, often overlooked, due diligence signal for a fund is the quality of its junior team. Great managers attract, retain, and effectively communicate their vision to top young talent. By networking with peers, investors can gauge if a firm is a talent magnet, which strongly indicates the quality of its leadership and future prospects.

Despite extensive online and third-party checks, Jacobs considers multi-day, in-person interviews with the target's senior management to be the most crucial part of due diligence. This direct interaction is essential for uncovering hidden risks, opportunities, and the intangible "skeletons" that don't appear in financial statements.

With fundraising rounds closing in weeks instead of months, investors can no longer conduct exhaustive diligence on every detail. The process has become more efficient by treating the current business model as table stakes and focusing limited time on underwriting the core thesis for future, non-obvious growth.

The stigma of managed accounts representing managers in dire need of assets has flipped. Now, successful PMs from top firms use them to launch their own businesses with strong, long-term capital partners, indicating positive selection.

Unlike redeeming from a fund, allocators on a managed account platform can meet cash needs by accessing unencumbered cash directly. This provides liquidity without forcing the manager to sell positions, protecting the investment strategy and the relationship.

Instead of focusing on process, allocators should first ask managers fundamental questions like "What do you believe?" and "Why does this work?" to uncover their core investment philosophy. This simple test filters out the majority of firms that lack a deeply held, clearly articulated conviction about their edge.