Hedge Fund Due Diligence Questionnaire: How to Read One

What is a due diligence questionnaire for?

A DDQ turns a first conversation into a comparable record. Instead of each manager sending a different deck, the allocator asks the same questions of everyone, so differences in answers, and in the quality of evidence behind them, become visible.

It has three practical jobs:

• It screens out managers who cannot answer basic questions about their own firm.
• It gives the allocator a written record to compare against later documents, statements and reference calls.
• It tells the manager what an institution will ask, which helps a small team prepare before a meeting rather than during it.

A DDQ is not the diligence itself. It is the index to it. The real work is checking the answers against documents and independent sources.

What sections does a hedge fund DDQ usually cover?

Questionnaires differ, and industry bodies publish template versions, but most follow the same structure. The table shows what each section asks and what evidence would support a good answer.

Two sections do most of the work for a systematic manager: the track record section and the strategy and process section. The other sections protect against operational failure, which is a common reason small managers fail.

How should an allocator read the answers?

Read for evidence, not fluency. A confident paragraph with no source behind it is weaker than a short answer that points to a document.

1. Check that each factual answer names its source. “Audited by an independent firm” can be verified. “Strong controls” cannot.
2. Look for answers that avoid the question. If a question asks how many variants of a model were tested and the answer describes the model, the question was not answered.
3. Compare answers across sections. A strategy described as low turnover in one section and as execution-sensitive in another needs an explanation.
4. Ask who can confirm it. References, an administrator and a broker can each confirm facts the manager cannot easily shape.
5. Treat gaps as information. A blank or a deferred answer is a finding, not a delay.

For track records, the order of trust is generally: records from an independent administrator or auditor, then direct broker statements, then manager-prepared summaries, then simulations. See how to verify a quant track record and what a verified quant track record means for the longer treatment.

Which red flags show up in DDQ answers?

None of these proves a problem on its own. Each is a reason to ask a follow-up question.

• A track record described without naming who calculated it.
• Backtested results presented in the same table as live results.
• No named administrator, auditor or prime broker, or names given that the manager asks you not to contact.
• A strategy described only through its results, never through its mechanism.
• Capacity left blank, or stated without the assumptions behind it.
• Risk limits described in general terms with no owner and no review frequency.
• Fee and liquidity terms in the questionnaire that differ from the governing document.
• Answers that change between meetings.

How is a quant DDQ different?

A systematic manager needs extra questions, because the edge lives in a model rather than a person. The extra questions ask how rules were chosen, how many variants were tested before this one, which data was never looked at, how the model changes over time and what happens when live fills disagree with the simulation.

The general DDQ then needs a strategy-specific layer. The note on quant due diligence questions by strategy type sets out the main failure mode and five questions for trend following, statistical arbitrage, systematic macro, execution-sensitive and machine-learning strategies. The 38-point forensic due diligence framework covers the forensic side.

How should an emerging manager prepare to complete one?

Most of the effort is gathering evidence before the questionnaire arrives.

1. Assemble the record: statements, trade data and any administrator or audit documents, in the form a third party can open.
2. Write the strategy description in plain words, including what it does not do.
3. List the service providers and confirm each is willing to be contacted.
4. Write down risk limits, who monitors them and how often.
5. Prepare capacity assumptions and how they were derived.
6. Keep one source of truth, so answers do not drift between versions.

A manager who answers consistently and points to documents moves faster through diligence than one who writes the most polished text. The companion note on operational due diligence for emerging managers covers the operational side of a review, and how emerging hedge fund managers raise capital covers the routes that lead to a questionnaire in the first place.

Where does a questionnaire fit in Qlumina's review?

Qlumina admits a program to the Apex Marketplace only after a quantitative review, an operational review and a live pilot allocation. A questionnaire is one input to any review; Qlumina's reviews read the raw evidence: broker statements, timestamped trades and backtests, with checks for overfitting, hidden regime bias and tail risk. The full method is on the quant fund diligence page. You can browse programs or the Apex Marketplace; program statistics unlock after investor verification. Managers who want to be reviewed can read the portfolio managers page.

For how structures differ once a program is admitted, see the investor guide and the note on trade-only managed accounts. More reading is in all research notes.

Frequently asked questions

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.