Research Note / Due Diligence
A hedge fund DDQ template you can adapt: the questions to ask in each section, the evidence to request and which answers need a follow-up.
- Focus
- Hedge fund DDQ template
- Audience
- Allocators and managers
A hedge fund due diligence questionnaire template is a set of questions grouped by section that an allocator can adapt for its own review. The sections are firm and people, strategy and process, track record, risk, operations, legal and compliance, technology and security, and fees and terms.
This note lists the questions to ask in each section, what a good answer includes and which answers need a follow-up. It is a working template, not an industry standard, and it states no performance figures. It is educational and is not an offer or solicitation.
How should you use a DDQ template?
Start from the template, then remove questions that do not apply to the strategy and add questions that do. Keep the same set for every manager in a peer group so answers can be compared. Ask for a document behind every factual answer. For how to read the answers, see the hedge fund due diligence questionnaire guide.
What questions go in each section of a hedge fund DDQ?
The table gives core questions for each section and the evidence that should come with the answer.
| Section | Core questions | Evidence to ask for |
|---|---|---|
| Firm and people | Who owns the firm? Who makes investment and operational decisions? How long has the team worked together? What happens if the principal is unavailable? | Organization chart, biographies, ownership documents, succession plan |
| Strategy and process | What does the strategy do, in plain words? Where does the return come from? When does it struggle? What does it not do? | A plain description, research notes, construction notes for any model |
| Track record | How is performance calculated and by whom? Over what period? Which results are live and which are simulated? | Administrator or audit documents, broker statements, timestamped trade data |
| Risk management | What limits exist, who owns each and who can override it? How often are they checked? What happens after a loss? | Written limits with owners, review records, an example of a limit being hit |
| Operations | Who is the administrator, auditor and prime broker or custodian? How are trades confirmed and reconciled? | Provider names that can be contacted, process description, recent reconciliation sample |
| Legal and compliance | Which entity holds the regulatory standing? Which conflicts exist and how are they managed? | Constitutional documents, regulator register entry, policies and logs |
| Technology and security | Which systems hold records? Who has access? How is data backed up and continuity tested? | Systems list, access policy, most recent test record |
| Fees and terms | What is charged and when? When can capital leave? What happens on termination? | The fee and liquidity terms in the governing document |
Two sections do most of the work for a systematic manager: track record, and strategy and process. The rest protect against operational failure.
Which extra questions belong in a quant DDQ?
A systematic manager's edge lives in a model, so add questions on how rules were chosen, how many variants were tried before this one, which data was never used for fitting, how the model changes over time and what happens when live fills differ from the simulation. The quant due diligence questions by strategy type note sets out five questions for each major strategy family, and the 38-point forensic framework covers the forensic side.
Which answers need a follow-up?
- Answers that describe results but never the mechanism.
- A track record with no named calculator, or backtests presented next to live results.
- Capacity left blank, or stated without the assumptions behind it.
- Providers named with a request not to contact them.
- Fee or liquidity terms that differ from the governing document.
- Answers that change between the questionnaire and later meetings.
Treat a blank or deferred answer as a finding, not a delay.
How should a manager prepare to complete a DDQ?
- Assemble the record in a form a third party can open.
- Write the strategy in two paragraphs, including what it does not do.
- List providers and confirm each will take a call.
- Write down risk limits, owners and review frequency.
- Work out capacity and the assumptions behind it.
- Keep one source of truth so answers do not drift between versions.
For the operational section in depth, see operational due diligence for emerging managers and the operational checklist. Qlumina's method is on the quant fund diligence page. You can browse programs or the Apex Marketplace. More reading is in all research notes.
Frequently asked questions
What should a hedge fund DDQ template include?
Sections for firm and people, strategy and process, track record, risk management, operations, legal and compliance, technology and security, and fees and terms. Each section needs questions plus the evidence that should support the answers.
Is there a standard hedge fund DDQ?
Industry bodies publish template versions, but allocators adapt them, so there is no single standard. Using the same set for every manager in a peer group matters more than the exact wording.
How many questions should a DDQ have?
There is no right number. A shorter set that is tied to documents is more useful than a long one answered in generalities. Add questions for the strategy and remove those that do not apply.
What is different about a quant DDQ?
It asks how rules were chosen and tested, how many variants were tried, which data was held out, how the model changes and how live results compare with the simulation.
Who should complete a DDQ?
The manager's senior team, with input from operations, compliance and the service providers named in the answers. Allocators expect the answers to be consistent across the questionnaire, meetings and documents.
Risk and eligibility
Investing involves substantial risk of loss. The value of investments and the income derived from them can fall as well as rise, and investors may not recover the amount originally invested. Past performance is no guarantee of future returns. This note is for professional investors only, is educational, and is not an offer or solicitation of any kind. Qlumina is a BVI FSC approved investment manager. See the risk disclosure.
Allocators and managers
Managers can read how the three gates work and what is examined, and apply through the contact form on the portfolio managers page.
Research notes are published for professional readers. Not an offer or solicitation. Risk disclosure
