DDQ Guide: How to Answer a Due Diligence Questionnaire
It reads like an administrative exercise. It is actually the document that decides whether you get a second meeting.
A due diligence questionnaire (DDQ) is a standardised set of questions allocators send managers covering strategy, team, track record, operations, compliance, valuation and terms. Having strong answers prepared before you are asked is one of the highest-leverage things a manager can do — it shortens diligence and signals that you have done this before.
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Get in touchWhat a DDQ covers
Industry templates exist — ILPA publishes one widely used in private equity, and AIMA's is standard in hedge funds — and many allocators use their own variant. The structure is broadly consistent:
| Section | What is really being tested |
|---|---|
| Firm and history | Stability, ownership, and whether the business survives to the next fund |
| Team | Key person risk, alignment, and whether the record's authors are still present |
| Strategy and process | Whether the edge is repeatable and the process is real rather than described |
| Track record | Attribution, realised versus marked, and how losses were handled |
| Risk management | Whether limits are enforced or aspirational |
| Valuation | Independence, methodology, and who can override a mark |
| Operations | Service providers, controls, segregation of duties, cash movement |
| Compliance | Registrations, personal dealing, conflicts, regulatory history |
| Terms and structure | Fees, liquidity, key person, and how they compare to peers |
| Reporting | What investors receive, how often, and whether it arrives on time |
How allocators actually read it
Nobody reads a DDQ front to back looking to be impressed. They read it looking for inconsistency, evasion and gaps — and then follow up on exactly those three things.
- Inconsistency. The DDQ says the investment committee has three voting members; the deck shows two. Small contradictions trigger disproportionate scrutiny because they suggest nobody checked.
- Evasion. A question answered adjacent to what was asked reads as concealment, whether or not it is. "Describe any regulatory examinations" answered with a description of your compliance philosophy will be followed up immediately.
- Gaps. "Not applicable" on a question that plainly applies is worse than an uncomfortable answer.
The DDQ is also cross-checked. Answers are compared against your audited financials, your service providers' confirmations, and your references. Anything that does not reconcile becomes the entire conversation.
Answering the hard questions
Losses and write-offs
Give the facts, the cause, when you recognised it, what you did, and what changed in your process afterwards. A manager with no losses is either very early or not being straight; experienced allocators are more reassured by a well-analysed failure than by an unblemished record.
Team departures
Disclose them, with reasons, before a reference check surfaces them. Departures are normal; undisclosed departures are a credibility event.
Regulatory findings
State the finding, the remediation and the current status plainly. Attempting to minimise a matter an allocator can look up independently is the single fastest way to end a process.
Capacity
Give a number and the reasoning behind it. "We continually assess capacity" is a non-answer. "The strategy holds approximately $400m based on liquidity in our target universe, and we will soft-close there" is a real one.
Key person risk
Do not claim it does not exist in a three-person firm. Describe it accurately and set out what mitigates it — documented process, deputies, vesting, key person provisions in the fund documents.
Practical mechanics
Build a master DDQ before you raise
Answer a standard template in full, get it reviewed by counsel and compliance, and keep it current. Every allocator DDQ then becomes an editing job rather than a three-week scramble.
Keep a maintained answer library
Most questions repeat across allocators. A curated library of approved answers keeps you consistent, which is what the reader is checking for.
Version-control ruthlessly
Different numbers in two allocators' DDQs is a serious problem if they compare notes, and allocators do compare notes.
Have compliance and counsel review
Particularly on regulatory history, conflicts and performance claims, where a careless phrase creates real exposure.
Update quarterly
Performance, AUM, headcount and service providers all move. A DDQ citing last year's figures undermines everything else in it.
Why preparation shortens the raise
Diligence is a sequence of gates, and each unanswered question is a delay of days or weeks while an allocator waits, chases and re-reviews. A manager who returns a complete, consistent, well-evidenced DDQ within days of the request can compress a diligence cycle materially — and, just as importantly, signals institutional competence before anyone has examined the substance.
Frequently asked questions
What is a DDQ?
A due diligence questionnaire: a standardised set of questions allocators send managers covering strategy, team, track record, operations, compliance, valuation and terms. Industry templates exist from ILPA in private equity and AIMA in hedge funds, and many allocators use their own variants.
How do allocators read a DDQ?
Not for impressiveness — for inconsistency, evasion and gaps, then they follow up on precisely those. Answers are also cross-checked against audited financials, service provider confirmations and references, so anything that fails to reconcile becomes the whole conversation.
How should I answer questions about losses?
Directly: the facts, the cause, when you recognised it, what you did and what changed in your process afterwards. Experienced allocators are more reassured by a well-analysed failure than by a record with no losses in it.
Should I disclose regulatory findings?
Yes, plainly, with the remediation and current status. Allocators can and do look these up independently, and attempting to minimise a matter they can verify is one of the fastest ways to end a process.
Should I prepare a DDQ before anyone asks?
Yes. Answering a standard template in full, having counsel and compliance review it, and keeping it current turns every future allocator DDQ into an editing exercise rather than a scramble — and materially shortens diligence.
How often should a DDQ be updated?
At least quarterly, and immediately after any material change. Performance, AUM, headcount and service providers all move, and a DDQ citing stale figures undermines confidence in every other answer in it.
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