Underwriting
Underwriting is the evaluation process used to decide whether to invest, including thesis, risks, terms, and expected returns.
Allocator relevance: Underwriting quality predicts outcomes—allocators diligence the process, not just the results.
Expanded Definition
Underwriting includes market and company analysis, downside cases, valuation and term review, competitive positioning, and operational feasibility. In private credit, underwriting centers on borrower quality, covenants, and recovery assumptions; in venture/PE, it includes product, team, unit economics, and value creation plans.
For allocators, underwriting is a repeatability test: can the manager systematically make good decisions, or are outcomes luck-driven?
How It Works in Practice
Managers build investment memos, run diligence, negotiate terms, and decide through an investment committee. Post-investment, the underwriting thesis becomes the monitoring baseline.
Decision Authority and Governance
Governance defines underwriting standards, required diligence steps, and exceptions. Weak governance often shows up as style drift, overpaying, or covenant weakening.
Common Misconceptions
- Underwriting is just forecasting upside.
- Strong brand means strong underwriting.
- Underwriting ends at closing (monitoring is part of underwriting discipline).
Key Takeaways
- Underwriting is thesis + downside + terms + execution feasibility.
- Repeatability and discipline matter most.
- Governance makes underwriting consistent.