Hedge Fund Due Diligence Questionnaire

In the following video, I explain to you what a due diligence questionnaire (DDQ) is and why all hedge fund professionals should be very familiar with it.  I also provide you with some tips for responding to a hedge fund due diligence questionnaire.

Video Transcript/Summary: The strategies and tips provided within this video module include:

1. A hedge fund due diligence questionnaire is a 20-60 page document that includes 30+ questions on how your hedge fund manages risk, how your hedge fund operates, and any other questions that are important for hedge fund investors to know.
2. The hedge fund due diligence questionnaire is used by hedge fund investors to evaluate hedge funds and compare that hedge fund to others.
3. Often times, hedge fund investors will take your answers to the due diligence questionnaire and keep it in a database for years.  This is why it is so important that you prepare for this DDQ and provide the answers that investors want to hear.  
4. Make sure that your response is provided within one day.
5. Make sure that your response is reviewed by a compliance or legal counsel.  
6. Keep a master DDQ on file based on all of the hedge fund due diligence questionnaires that you have completed.  

A hedge fund manager recently emailed me and said that he did not know what a DDQ was.  I hope that this video has provided you with a better understanding of what a hedge fund due diligence questionnaire is and some valuable tips on how to complete a hedge fund DDQ.    

Transcript of Hedge Fund Due Diligence Questionnaire

Hello, this is Richard Wilson. I wanted to create a short video module to help explain to you what a Due Diligence Questionnaire is or a DDQ is. I’m here in downtown Singapore, in town for an investment conference both here and in Tokyo. And I just got an e-mail this morning from someone who runs a hedge fund and didn’t know what DDQ standed for. And DDQ stands for Due Diligence Questionnaire.

So I just wanted to make this short, 3 or 4-minute video because I wanted people that can’t come to hedgeblogger.com or that a completely certified hedge fund professional designation program to know what a DDQ is. It should be a term that you know and are familiar with. You’re not lost during a job interview or when meeting with a potential investor. So a Due Diligence Questionnaire is a 20 to 60-page document which includes generally 30 to 50 questions or more about your hedge fund and how you operate, how you manage risks, how you make investments, how you manage your team and et cetera, et cetera.

So basically it’s a very well-detailed questionnaire about everything related to your hedge fund business so that a potential investor, typically an institutional investor can evaluate your hedge fund, how sophisticated you are, how institutional you are, how risk aware you are, what tools you use. They’ll ask things about disaster recovery, about progression within your team, about what happens if your portfolio manager leaves, how would that affect your trading performance, about the scope of your investments and how that could change the different types of market conditions.

And it’s just really important to do a very good job replying within the Due Diligence Questionnaire when an investor gives you one because often times they look at that, enter it in to their data base and stays there forever in their database, within that institutional investor’s firm. And often times if you answer just one or two questions wrong, it would kind of knocked you out of the running or you might spend a whole hour of phone call or two making up for a few small mistakes.

So a few tips, if you’re complete in DDQs and already knew what one was or you’re about to complete your first DDQ, make sure that your responses are provided within one day. One business day is a standard for replying to a DDQ, otherwise you’d like you’ve never done it before. Another test is to make sure it’s compliance approved. You know this isn’t like marketing materials per se. It really is if you’re trying to convince the investor to invest in you, is you can’t just say whatever you’d like. You have to pay attention to compliance rules and marketing rules, and have your compliance attorney or legal expert look at it before sending it out. And third you should definitely have a master DDQ on a file.

Once you’ve done one of these once, keep it. If you do a second one figure out what other questions were unique in that second one because most of them probably will be similar from the first one and then create a master DDQ file. So the more of these you complete, the more professional answers you’ll have, the quicker you’ll be able to do it, the graphs and graphics you’ll have to insert. You’ll just look more professional and you’d be more efficient at completing these DDQs.

So I hope this helps if you didn’t know what a DDQ was, you do now. And thanks for joining us here today.

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