status: draft

Due diligence preparation

Due diligence is where fundraises die. LPs who express interest in meetings often walk away during diligence when they discover gaps, inconsistencies, or concerns. This guide covers DDQ preparation, operational due diligence requirements, reference management, and data room organization. The goal is to pass diligence cleanly, not scramble to fill gaps after problems emerge.

status: draft

The DDQ

The Due Diligence Questionnaire is your master document. Prepare it before your first LP meeting, not after an LP requests it.

Standard DDQ sections

Section	Content	Typical length
Firm overview	History, ownership, AUM, headcount	3-5 pages
Investment team	Biographies, roles, experience	5-10 pages
Investment process	Sourcing, underwriting, portfolio construction	8-15 pages
Risk management	Monitoring, limits, escalation, workout	5-10 pages
Operations	Trade execution, valuation, cash management	8-12 pages
Compliance	Regulatory status, policies, procedures	5-8 pages
Track record	Performance, attribution, case studies	10-15 pages
Terms	Fees, governance, liquidity	3-5 pages
Total		50-100 pages

Master DDQ preparation

Create a comprehensive master DDQ that addresses all standard questions. You will customize for specific LPs, but the foundation must be ready.

Key principles:

Completeness: Answer every standard question, even if the answer is “not applicable” with explanation
Consistency: Ensure numbers and descriptions match across sections
Specificity: Provide concrete examples, not generic descriptions
Honesty: Address weaknesses proactively with mitigations

Common DDQ gaps that kill deals:

Vague process descriptions (“We conduct rigorous credit analysis”)
Missing policies (no written valuation policy, no conflict policy)
Inconsistent numbers (different AUM figures in different sections)
Unexplained team changes (departures without context)

LP-specific customization

When an LP requests your DDQ, customize these elements:

Cover letter referencing your conversation and their specific interests
Highlighted sections most relevant to their mandate
Supplemental materials for their specific questions
Formatting to match their template if provided

Do not send a generic DDQ without customization. It signals lack of attention to detail.

status: draft

Operational due diligence

Most institutional LPs use ODD consultants or internal teams to evaluate non-investment risks. ODD typically happens after investment committee approval in principle but before final commitment.

What ODD evaluates

Area	What they check	Common failures
Organization	Ownership, governance, succession	Undocumented ownership, no succession plan
Valuation	Policies, process, oversight	No third-party validation, inconsistent methodology
Cash management	Custody, controls, reconciliation	Weak segregation, manual processes
Trade execution	Best execution, allocation	No written policy, discretionary allocation
Technology	Systems, security, backup	Outdated systems, no disaster recovery
Compliance	Registration, policies, testing	Missing filings, untested policies
Business continuity	Plans, testing, redundancy	No written plan, untested procedures

ODD consultants

The major ODD consultants are:

Albourne: Largest, most rigorous, used by many pensions
Aksia: Strong private credit expertise
Castle Hall: Extensive hedge fund and private credit coverage
K2: Focus on quantitative and systematic strategies

Each has different focus areas and reporting styles. Ask LPs which consultant they use and tailor preparation accordingly.

Passing ODD

Before ODD begins:

Complete self-assessment using standard ODD questionnaires
Document all policies in writing (not “we do this informally”)
Test business continuity and disaster recovery
Review all service provider agreements for standard terms
Address any known gaps proactively

During ODD:

Designate one person as ODD coordinator
Respond to requests within 24-48 hours
Provide complete answers (partial answers create follow-up cycles)
Be honest about limitations with mitigation plans
Make key personnel available for calls

Common ODD deal-killers:

Undisclosed regulatory issues or litigation
Material weakness in valuation process
Key person concentration without succession planning
Cybersecurity deficiencies
Conflicts of interest without management framework

status: draft

Reference calls

References can make or break a commitment. Prepare your references and manage the process carefully.

Reference categories

Provide 5-7 references covering:

Category	Why they matter	Who to include
Current investors	Can speak to reporting, communication, performance	2-3 existing LPs
Former investors	Why they invested, why they left (if applicable)	1 if available
Originator partners	Can speak to relationship quality, execution	2-3 key originators
Service providers	Can speak to professionalism, responsiveness	Administrator, counsel
Former colleagues	Can speak to integrity, work quality	1-2 relevant contacts

Reference preparation

Brief your references on what to expect:

Who will call (LP name, consultant name)
What topics they will likely ask about
What you would like them to emphasize
Any sensitive topics to handle carefully

Do not coach specific answers. LPs can tell when references are overly scripted, and it backfires.

Common reference questions

Question	What LP is really asking
Would you invest again?	Is this manager still credible?
What are their weaknesses?	Are they self-aware? Did they disclose this?
How do they handle adversity?	Will they perform under stress?
How is their communication?	Will I know what is happening?
Any surprises since you invested?	Is there hidden information?

Reference red flags

LPs are trained to detect:

References who hesitate before answering
References who only give generic praise
References who seem unfamiliar with the manager
References who reveal information the manager did not disclose
Too few references (signals relationship problems)

status: draft

Background checks

LPs run background checks on all senior team members. Do not wait to discover issues during their check.

What gets checked

Criminal history (all jurisdictions)
Civil litigation (as plaintiff or defendant)
Bankruptcy filings (personal and business)
Regulatory actions and sanctions
FINRA BrokerCheck disclosures
Credit history (for some LPs)
Media mentions and social media

Issues that require proactive disclosure

Issue	How to handle
Regulatory action	Disclose in DDQ with full explanation and resolution
Material litigation	Disclose with context (plaintiff vs. defendant, outcome)
Personal bankruptcy	Disclose with circumstances and time elapsed
Business failure	Disclose with lessons learned and what changed
FINRA disclosures	Explain each disclosure with context

The rule: If it will be found, disclose it first. Hiding problems that emerge in background checks destroys trust immediately and permanently.

For international team members

Background checks for international personnel require additional documentation:

Work authorization verification
International criminal checks (where available)
Education and credential verification
Prior employer verification

status: draft

Data room preparation

Organize materials in tiers so you can share appropriately based on relationship stage.

Tier 1: Before first meeting

Available to any qualified LP prospect:

Pitch deck
Executive summary / teaser (2-3 pages)
Team biographies
Fund terms summary
High-level track record

Tier 2: Serious prospects (post-meeting interest)

Available to LPs who have expressed interest and signed NDA:

Master DDQ
Sample portfolio holdings (redacted)
Monthly/quarterly investor reports (redacted)
Investment committee memos (redacted examples)
Compliance manual summary
Valuation policy
Audited financial statements (if available)

Tier 3: ODD and final diligence

Available to LPs in active diligence:

Full compliance manual
Business continuity plan
Cybersecurity policies and assessments
Employment agreements (key persons)
Fund formation documents (drafts or final)
Service provider agreements
Complete deal documentation for sample transactions

Sample deal documentation

Prepare 2-3 redacted deal packages showing your full process:

For each deal, include:

Initial screening memo (how you found it, first impressions)
Full credit memo (analysis, risks, mitigants)
Term sheet (structure, pricing, covenants)
Investment committee approval documentation
Ongoing monitoring reports (3-6 months of examples)
If applicable: workout documentation, exit memo

This demonstrates process rigor more than any description in a DDQ.

Data room hygiene

Best practice	Why it matters
Consistent naming conventions	Easy to find documents
Version control	No confusion about which is current
Clear folder structure	Logical navigation
Index document	Guides LPs to what they need
Access logging	Know who viewed what
Regular updates	Stale data suggests disorganization

status: draft

Common due diligence failure points

Compliance and regulatory gaps

LPs expect:

Registered investment adviser status (or clear exemption with legal opinion)
Current Form ADV (Parts 1 and 2A)
Written compliance policies covering conflicts, personal trading, best execution
Annual compliance review documentation
Evidence of compliance testing

Common gaps:

Form ADV not updated within required timeline
Compliance policies drafted but never tested
No documentation of compliance training
Missing conflicts disclosures

Key person risk and succession

If your fund depends on one or two people, LPs want to see:

Risk	Required mitigation
Death or disability	Key person life insurance, disability coverage
Departure	Partnership agreement terms, non-compete provisions
Retirement	Documented succession plan with timeline
Dispute	Partnership agreement dispute resolution
Development	Evidence of next-generation training and delegation

Valuation methodology weaknesses

ABF portfolios are illiquid and hard to value. LPs scrutinize:

Aspect	What they look for
Who values	Internal vs. third-party
Methodology	Market quotes, model-based, cost basis
Frequency	Monthly, quarterly, on each NAV
Governance	Valuation committee, override documentation
Independence	Separation between investment and valuation

Third-party valuation agents add cost ($50-100K annually) but reduce LP concerns significantly. Consider for Fund I if targeting institutional LPs.

Conflicts of interest

Document all conflicts and your policies for managing them:

Conflict	Management approach
GP co-investment	Written allocation policy, pro-rata or pre-defined
Fee sharing with originators	Full disclosure in PPM and DDQ
Multiple funds with overlapping mandates	Allocation policy with clear priority
Service providers with equity relationships	Disclosure and arm’s-length documentation
Side letter terms	Standard management process

Cybersecurity

Every ODD questionnaire now includes cybersecurity. At minimum demonstrate:

Area	Minimum standard
Network security	Firewall, intrusion detection, regular patching
Access controls	Multi-factor authentication, role-based access
Employee training	Annual security awareness training
Incident response	Written plan, tested procedures
Vendor assessment	Third-party security review for key vendors
Insurance	Cyber liability coverage

status: draft

Due diligence timeline management

Parallel processing

Do not wait for one LP to complete diligence before starting another. Run multiple diligence processes in parallel.

Week	LP A	LP B	LP C
1-4	Initial meetings	Marketing	-
5-8	DDQ review	Initial meetings	Marketing
9-12	ODD calls	DDQ review	Initial meetings
13-16	IC preparation	ODD calls	DDQ review
17-20	Close	IC preparation	ODD calls

Response time expectations

Request type	Target response time
Simple data request	24 hours
Complex analysis	48-72 hours
Policy documentation	24 hours (should be ready)
Reference coordination	48 hours to schedule
Legal document review	1 week

Slow responses signal disorganization and kill deals.

status: draft

Key takeaways

Prepare before you need it. Master DDQ, data room, and policies should be ready before your first LP meeting.
ODD kills deals. Pass ODD cleanly by addressing gaps before they are found.
References matter. Prepare your references and ensure they will give specific, positive feedback.
Disclose proactively. Anything that will be found should be disclosed first with context and mitigation.
Respond fast. Slow diligence responses signal disorganization and kill momentum.