Hedge Fund Due Diligence Template

Prompt

Conduct an institutional-quality due diligence review of [FUND NAME] for potential allocation.

Allocation context:
- Allocator type: [FAMILY OFFICE / ENDOWMENT / PENSION / HNW INDIVIDUAL]
- Investment mandate: [DESCRIBE PORTFOLIO STRATEGY AND CONSTRAINTS]
- Proposed allocation: [AMOUNT OR PERCENTAGE OF PORTFOLIO]
- Minimum commitment: [AMOUNT]
- Liquidity requirements: [REDEMPTION TERMS ACCEPTABLE]

**DUE DILIGENCE FRAMEWORK**

1. **Strategy Analysis** — What is the investment strategy? Is the edge real and sustainable?
   - Investment philosophy and process
   - Market inefficiency being exploited
   - Strategy capacity constraints

2. **Performance Review**
   - Returns: absolute and vs. benchmarks
   - Risk-adjusted metrics: Sharpe, Sortino, Calmar ratios
   - Drawdown history: max drawdown, recovery time
   - Performance in different market regimes

3. **Portfolio Construction**
   - Position sizing and concentration
   - Leverage usage
   - Liquidity of underlying holdings vs. redemption terms

4. **Operational Due Diligence**
   - Prime broker, administrator, auditor quality
   - Technology and risk systems
   - Compliance and regulatory history

5. **Team Assessment**
   - Key person risk
   - Incentive structure alignment
   - Team stability and succession

6. **Terms and Structure**
   - Fee structure (management fee, performance fee, hurdle)
   - Liquidity terms and gates
   - Side pocket usage

7. **Reference Check Questions** — 10 questions for investor references.

8. **Invest / Pass with Key Conditions**