Alternatives Manager Research through the Lens of Industry Standard DDQs

There is no question that alternatives are having their day in the sun. Private market managers, across a wide range of strategies, are fundraising at a record pace. Hedge funds thought left behind in the face of a 12-year bull market in public equities are seeing a resurgence of interest from institutional investors. The term “alternatives,” while a general moniker for anything not “long-only,” represents a wide range of investment strategies with various risk parameters, supporting processes, and necessary infrastructure. While there are certainly some commonalities in assessing a listed security-focused hedge fund versus a private markets-focused manager (people, regulatory standing, alignment of interests), there are considerable differences in how these two types of “alternative” managers invest, report, hire, reconcile, and generally operate their businesses. Two of the most prominent industry associations supporting non-traditional asset classes, the Alternative Investment Management Association (AIMA) and the Institutional Limited Partners Association (ILPA), each publish a comprehensive due diligence questionnaire to assist Limited Partners (LPs) in their manager research efforts. This article examines how each questionnaire can be utilized in understanding both the investment and operational differences between hedge funds trading listed securities and managers focused solely on private transactions.