Completing the DDQ is generally regarded as one of the most significant steps that investment managers must complete before an investor decides whether to allocate to a fund. The first AIMA DDQ, published in , was mostly geared to managed futures funds and contained around questions about the investment manager and the fund. Subsequent editions included more investment strategies, reflected changing business practices and took account of evolving regulations. For the first time, the questionnaire specifically covers private credit and private equity strategies as well as hedge funds. Ever more investors are undertaking significant due diligence processes prior to making an investment. Many alternative investment fund managers have transformed into diversified multi-strategy, multi-product firms seeking investments from a wide range of investors.
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Specifically, for the first time there are questions specifically covering private credit and private equity strategies. The new document also integrates what were formerly separate questionnaires specific to commodity trading advisers and fund of funds managers. Ever more investors are undertaking significant due diligence processes prior to making an investment. Many alternative investment fund managers have transformed into diversified multi-strategy, multi-product firms seeking investments from a wide range of investors.
These factors have created challenges for investment managers and for investors alike. Reacting to these pressures, AIMA has modernized its suite of DDQs, making them more flexible, easier to complete and more data-driven than before.
The Benefits of Modularity The template is conveniently modular: meaning that managers will be able to fill out only those sections that apply to their businesses and the products they have on offer.
The questionnaires can now be accessed online, but only by AIMA members. Likewise with the instruction manual, here. Use of the questionnaire is a good early step in the DD process: it should not be the final step. The answers should allow investors to develop the areas of focus for further inquiries, and they may of course cross-check the answers with data from other sources. The modular framework means that the easiest way for a manager to start work on the questionnaire is with either the Basic Open-End Setup or the Basic Closed-End Setup, whichever applies.
How will the investor follow up with a manager who responds vaguely or to a question distinct from the one actually presented?
How will they determine if a DDQ presented to them by a manager is itself biased in favor of telling them what the manager wants them to hear? How often does this investor anticipate having the manager update the answers to the DDQ?
In general Corgentum is cautioning that some investors are in danger of using the DDQ as a crutch to avoid the work involved in extensive operational; due diligence.
Why is it useful for there to be a standardised set of questions? Standardised questions help investors compare like-for-like when they receive responses from multiple managers. Managers like standardised questions because it reduces the amount of work they have to do and helps them reassure investors that they are all receiving the same information. Even in the absence of an investor request for information, a standard set of questions can be helpful for new managers who are seeking to assess their own practices against industry standards. DDQs are used by investors from all around the world and by many of our asset manager members. For investors, the DDQ is an early step in the due diligence process but by no means is it the last step.
Due Diligence Questionnaires