Hedge Fund Due Diligence Checklist

Welcome to the Hedge Fund Due Diligence Checklist

This tool helps you systematically review and assess a hedge fund. Go through each section, check off the items you have verified, and add any relevant notes. Once completed, generate a summary report.

Click "Next" to begin your due diligence process.

Management & Team

Assess the quality, experience, and integrity of the fund's management team and key personnel.

Team Experience & Qualifications

Reviewed CVs/Biographies of key principals and portfolio managers.

Verified professional qualifications and licenses of key personnel.

Assessed team stability and turnover rates.

Organizational Structure & Governance

Reviewed organizational chart and reporting lines.

Understood the decision-making process (e.g., investment committee structure).

Assessed succession planning for key individuals.

Compensation & Alignment

Understood the compensation structure and incentive alignment.

Confirmed co-investment by principals/management in the fund.

Investment Strategy

Evaluate the clarity, consistency, and robustness of the fund's investment approach.

Strategy Definition

Clearly defined primary investment strategy (e.g., Long/Short, Global Macro, etc.).

Understood investment objectives and goals.

Identified sources of alpha and competitive advantages.

Investment Process

Reviewed idea generation and research process.

Understood portfolio construction and position sizing methodology.

Assessed typical investment horizon and liquidity profile of holdings.

Identified instruments traded (e.g., equities, derivatives, bonds).

Market & Capacity

Evaluated the fund's target market and competitive landscape.

Assessed fund capacity and growth limitations.

Performance & Risk Management

Analyze historical performance, risk controls, and reporting transparency.

Historical Performance Analysis

Reviewed audited performance data (net of fees) since inception.

Analyzed risk-adjusted return metrics (Sharpe, Sortino, Calmar ratios).

Evaluated performance during various market cycles and stressed periods.

Compared performance against relevant benchmarks and peer groups.

Risk Management Framework

Understood the fund's overall risk philosophy.

Confirmed independence of risk management function from investment team.

Identified types of risks monitored (market, credit, liquidity, operational, etc.).

Reviewed risk measures used (VaR, stress testing, scenario analysis) and limits.

Assessed liquidity risk management practices, especially under stress.

Transparency & Reporting

Evaluated frequency and detail of investor reporting.

Confirmed independent risk reporting from third parties (if applicable).

Operations & Compliance

Assess the fund's operational infrastructure, internal controls, and regulatory adherence.

Operational Controls

Reviewed internal control environment and segregation of duties.

Understood trade reconciliation and settlement processes.

Assessed asset pricing and valuation policies (especially for illiquid assets).

Technology & Cybersecurity

Overview of IT infrastructure, trading platforms, and data management systems.

Reviewed cybersecurity protocols and measures.

Assessed business continuity and disaster recovery plans.

Service Providers

Reviewed all third-party service providers (administrator, auditor, prime broker, etc.).

Confirmed Service Level Agreements (SLAs) are in place and monitored.

Legal & Fund Structure

Examine the legal framework, regulatory compliance, and potential conflicts.

Regulatory & Compliance

Confirmed regulatory registrations and compliance with applicable laws.

Reviewed compliance program, policies, and internal controls.

Investigated past or current regulatory investigations, fines, or sanctions.

Assessed Anti-Money Laundering (AML) and Know Your Customer (KYC) policies.

Legal Documents & Structure

Reviewed Private Placement Memorandum (PPM) / Offering Memorandum.

Examined Subscription Agreement and Limited Partnership Agreement (LPA).

Understood fee structure, redemption terms, lock-ups, and gates.

Litigation & Conflicts

Investigated any pending or past litigation involving the fund/management.

Reviewed policies for identifying and managing conflicts of interest.

ESG Considerations (Optional)

Evaluate the fund's approach to Environmental, Social, and Governance factors.

ESG Integration

Determined if ESG factors are integrated into the investment process.

Reviewed any formal ESG policy or framework.

Identified any specific ESG exclusions or positive screens.

Assessed how ESG data is sourced and integrated.

ESG Reporting

Confirmed if the fund provides ESG-related reporting to investors.

Summary & Report

Review your due diligence findings and generate a comprehensive report.

Hedge Fund Due Diligence Report

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