The term “alternative investments” is a general catch-all for any type of investment strategy not normally deemed long-only. Private capital strategies (real estate, private equity, venture capital, private credit) and hedge funds generally fall under this label. And while there are a number of similarities in due diligence approaches when it comes to alternative investments, there are considerable differences to take into account between private capital and hedge fund manager research. It goes without saying that due diligence in alternative asset classes is not a one-size-fits-all process – not between asset classes and not even between strategies.
Our VP of Marketing, Andre Boreas, recently penned a paper for the Journal of Alternative Investments where he looked at the similarities and differences between private capital and hedge fund manager research through the view point of two notable due diligence questionnaires: The ILPA Due Diligence Questionnaire and AIMA’s Open-end Investment Manager Questionnaire. Both DDQs are meant to provide Limited Partners with a baseline set of questions with which to capture firm, personnel and strategy-specific information from GPs under consideration for investment. With ILPA’s DDQ focused on private capital strategies and AIMA’s DDQ focused on hedge fund strategies, one can see the different approaches in terms of due diligence each particular strategy requires and the differences between investing in private companies vs. public securities. These differences are apparent when comparing the aforementioned DDQs, particularly around strategy, risk, performance and supporting technology topics.
If you’d like to read the paper, you can access it here. (Note that a subscription to the Journal of Alternative Investments is required. CAIA members can access it free through their membership.)