What aspect of due diligence does monitoring risk types and levels relate to?

Monitoring risk types and levels is fundamentally connected to the risk review aspect of due diligence. This process involves continuously assessing and understanding the different types of risks, such as market risk, credit risk, operational risk, and liquidity risk, among others, that an investment may be subject to.

A risk review aims to identify potential issues before they impact performance. It helps in understanding how current and emerging risks could affect an investment strategy and provides a framework for making adjustments based on changing conditions. For investment managers and stakeholders, this ongoing monitoring ensures that they remain aware of the risk landscape related to their investments and can make informed decisions to mitigate those risks or alter their investment strategies as necessary.

In contrast, a strategic review focuses more on alignment with long-term goals and investment strategies, while an administrative review pertains to operational processes and compliance. A performance review is primarily concerned with the returns generated from investments, rather than the underlying risks associated with those investments. Therefore, maintaining a thorough risk review process is essential for effective due diligence in alternative investments.