DDQ Outline

1. Key Information on the Investment Management Group (IMG)
   1. Investment Manager/Investment Adviser
      1. Depending on the structure of a hedge fund, an IMG will include the Investment Manager (IM) and may also include an Investment Advisor (IA). For ease, and to avoid confusion, we will use IMG to represent both the IM and the IA, as the case may be.
   2. Contact Details
      1. Contact details should include the following information for the IMG: firm name, address, phone number, fax number, email address, and website address (if applicable).
      2. Contact details for key individuals such as the portfolio manager or head of marketing should also be included.
   3. Background of IMG
      1. At the minimum, background information should include key legal information. For example, what is the legal structure of the IMG? Is it a corporation or a partnership? Where are the respective IMG entities incorporated?
      2. Additionally, regulatory information pertaining to the IMG should be included as well. Which regulators have oversight over the IMG? When did the IMG receive its regulatory status/licences? Is the IMG subject to any regulatory restrictions or exemptions? Has the IMG ever been subject to any regulatory investigations?
      3. What types of business activity is the IMG involved in?
      4. Chart that denotes the organizational structure of the IMG. This can usually be done by providing an organizational chart that shows division of responsibilities among teams and employees, identifies key personnel (including corporate directors), and where employees and offices are located if the IMG has more than one office. Important to note that if an IMG is operating in multiple jurisdictions then it likely has local entities in various jurisdictions that will be incorporated separately and regulated by local regulators. All of this information should be reflected properly.
      5. Further information regarding employees should also be provided, such as total number of employees and biographical information on key employees including the portfolio manager and other key investment, risk, and operations professionals. For biographical information, prospective investors generally want to see educational background, type of professional experience, and length of professional experience.
      6. A DDQ should also include an ownership chart that identifies the shareholders of the IMG. Employee ownership should be highlighted and an explanation should be provided if the ownership structure is not self-explanatory. Such an explanation should include a brief background of shareholders and their relationship to the IMG if not provided elsewhere in the DDQ.
      7. Many investors that allocate capital to hedge funds will normally request audited financial statements from at least the last three years.
   4. IMG Client Information
      1. What is the value of the assets that the IMG manages or advises?
      2. What is the breakdown of investor by category (e.g., endowments, fund of funds, family office, etc.)?
      3. What is the geographic breakdown of investors?
      4. What percentage of assets that are managed or advised by the IMG is attributable to the IMG's largest single investor?
2. Investment Management: Research and Trading
   1. Research and Investment Process
      1. Provide a description of how ideas are sourced and then executed. This should include common sources of idea generation and then the process by which an idea becomes an investable idea.
      2. Some questions worth considering: How are recommendations tracked? Are research notes required to initiate a trade? Does the idea have to be presented to a committee? Who has the decision-making authority to make buy or sell decisions? If an investment is made, how is the position monitored?
   2. Trading
      1. Who are the authorized traders at the IMG? Is there a designated execution trader or team?
      2. If there is a designated execution trader or team it is recommended to provide relevant points about their background.
      3. How are trades made and recorded?
      4. How are trades allocated across multiple portfolios that may have similar strategies? This answer requires a description of the IMG's trade allocation policy.
3. Risk Management, Operations, and Infrastructure
   1. Risk Management
      1. Who is responsible for risk management? What is their background if not detailed elsewhere?
      2. What are the key risks related to the IMG's investment strategy?
      3. Describe the IMG's risk management framework including loss limits, position size, portfolio monitoring, liquidity, etc.
      4. Is hedging a core part of risk management? If so, describe the hedging strategy used by the IMG. How effective has hedging been? What are the costs of the hedging programme?
      5. What are the core risk tools and systems used by the IMG to manage risk?
      6. Do the IMG's risk management efforts incorporate any third-party risk management advisers or other similar risk management service providers?
      7. What other risks does the IMG face beyond risks associated with its investment strategy? Some examples could relate to key man risk, regulatory change that would impact the IMG, redemptions, etc.
   2. Operations
      1. Identify the key operations team members and their backgrounds if not done so elsewhere.
      2. What are the key operational risks related to the IMG's investment strategy?
      3. What is the process for trade capture, confirmation, and settlement?
      4. Please explain how all operational processes are properly documented and that all required records are stored properly.
      5. Are the operational processes done by staff manually or is there any process automation involved?
      6. When was the last major operational issue (or during the last X period of time)? Please describe. What was the profit and loss impact, if any, of the operational issue?
      7. Describe the escalation process if a trade error or other operational issue arises.
   3. Infrastructure
      1. Does the IMG have a Business Continuity Plan (BCP)? If so, please describe.
      2. How frequently is the BCP tested? If the BCP is tested, is there an evaluation and improvements made to the BCP? Please describe.
      3. Has the BCP been activated for a real scenario? If so, please describe the details and the effectiveness of the BCP.
      4. Some prospective investors may request a copy of the IMG's BCP.
      5. Does the IMG have an IT Policy that outlines data storage and backup policies? If so, please describe.
      6. Are the IMG's IT Policy, technical hardware including servers, and data back-up processes compliant with its regulator's requirements?
      7. Please describe the IMG's policy in the event of an IT issue such as loss of data, server issues, or cyber attack.
      8. Some prospective investors may request a copy of the IMG's IT Policy.
4. Compliance and Legal
   1. Compliance
      1. Identify the key team member(s) responsible for compliance at the IMG and their backgrounds if not done so elsewhere.
      2. Some prospective investors may request a copy of the IMG's Compliance Manual.
      3. Please describe the IMG's soft dollar policy.
      4. Please describe the IMG's anti-money-laundering policy.
      5. Please describe how the IMG manages conflicts of interest.
      6. Please identify current conflicts of interest involving the IMG and how those conflicts of interest are being managed.
      7. Does the IMG use any third-party service providers to assist with its compliance function? If so, please identify.
   2. Legal
      1. Identify the key team member(s) responsible for legal at the IMG and their backgrounds if not done so elsewhere.
      2. Is the IMG currently involved in any civil or criminal litigation? Has the IMG been involved in any civil or criminal litigation the last ‘X’ amount of years? If so, please describe.
      3. Have senior members of the IMG been involved in any civil or criminal litigation? If so, please describe.
      4. Has the IMG, its affiliates, and/or its employees ever been part of any regulatory investigation or other similar action? If so, what was the outcome of such regulatory investigation or similar action?
      5. Does the IMG use any third-party service providers to assist with its legal work? If so, please identify.
5. Information on the Funds that the IMG Serves

   Once information has been provided on the IMG most DDQs will ask for information on the fund(s) that the IMG serves. For convenience, reference to fund here will include a master fund and its related feeder funds (‘master–feeder structure’). Generally, information on a fund will include information such as the following. The below is not an exhaustive list but should provide some guidance on what to consider when preparing a DDQ or when evaluating a DDQ. As mentioned earlier, most of this information will also be contained in the PPM.

   1. Chart explaining the relationship between the IMG, fund, and service providers. If a master–feeder structure, then this should be depicted on the chart with annotations to indicate the legal relationship of the IMG to the fund and the legal relationship of the service providers to the fund and/or IMG. If an IMG serves more than one fund, then a chart should be created for each fund that the IMG serves.
   2. Core legal information related to the fund and subscribing to the fund. Potential investors should be provided with the fund's marketing presentation and the fund's PPM.
   3. Description of management and performance fees.
   4. Detailed description of subscription and redemption mechanics including different share classes, gate provisions, notice periods, lock-up periods, and other features should be explained clearly in order to avoid any issues in the future.
   5. Detailed description of the fund's pricing and valuation policy, which should also be outlined in the fund's PPM.
   6. Description of the method, substance, and frequency of how fund investors receive information related to their investment in the fund including performance reporting.
   7. Description and policy of the fund's use of side pockets.
   8. Name and background of the fund's directors.
   9. Detailed background information on service providers (e.g., audit firm, custodian, law firm(s), primer broker(s), administrator, etc.) including contact information, length of appointment, and relevant details related to the service agreement between the fund and each service provider.
   10. Some investors may ask for the fund's audited financial statements for a designated period of time. For a master–feeder arrangement, in most cases the audited financial statements of the feeder fund will be requested.