LP Due Diligence Checklist for Fund Managers 2026

LP Due Diligence Checklist for Fund Managers 2026#

LP diligence in 2026 runs on two parallel tracks — Investment Due Diligence (IDD) and Operational Due Diligence (ODD) — and both must pass independently before capital moves. An estimated 87% of LPs rejected a manager over operational concerns alone in 2026, response windows have compressed from 14 days to 5, and the average DDQ now spans 23 sections and 280+ questions. This article documents what LPs evaluate, the documents they require, the failure points that kill allocations before investment committee, and the limitations of any standardized diligence framework.

Why Diligence Preparation Matters More Than Targeting#

Altss has published guides on how to raise a fund without a placement agent, how to land an anchor investor, how to approach family offices, how to work with fund-of-funds, and the First-Time Fund Manager Playbook. All of those assume GPs can pass diligence. None of them explain what diligence actually looks like from the allocator's side.

Most GPs experience diligence as an inbound process: an LP sends a DDQ, you respond, and either you advance or you do not. What is less visible is the framework LPs use to evaluate responses — the scoring rubrics, the red flags that trigger immediate rejection, and the operational baselines that separate managers who get to investment committee from managers who get a polite "not right now."

This article is written from the LP's evaluation perspective, using the ILPA DDQ 2.0 framework as the structural backbone. ILPA's DDQ is now the de facto standard for private equity diligence — an estimated 89% of PE funds receive questionnaires aligned to the ILPA framework. In 2026, ILPA released new modules tailored to private credit, real estate, infrastructure, and emerging managers, plus a joint PRI Climate Module for responsible investment diligence.

The stakes have never been higher. In a 2026 survey by Altss of 1,200 institutional investors, 72% reported that they had increased the depth of their operational due diligence in the past 12 months. The average time to complete a full diligence process has stretched from 8 weeks in 2024 to 14 weeks in 2026, yet the window to respond to an initial DDQ has shrunk from 14 days to 5. GPs who cannot produce answers within that window are automatically disqualified by 63% of surveyed LPs.

The Two-Track Diligence Framework#

Institutional diligence is not a single process. It is two parallel evaluations — and both must pass independently.

Investment Due Diligence (IDD) evaluates whether the strategy, track record, team, and portfolio construction merit an allocation. This is the "can you generate returns" test.

Operational Due Diligence (ODD) evaluates whether the fund's infrastructure, governance, compliance, and risk management are sound. This is the "can we trust you with our capital" test.

The critical insight: a manager can pass IDD with strong returns and a compelling thesis — and still fail ODD over a missing valuation policy, inadequate insurance coverage, or an incomplete compliance program. An estimated 87% of LPs have rejected a manager over operational concerns alone in 2026, and 79% have significantly deepened their operational scrutiny in the past year. ODD failures are silent killers. GPs do not get a second chance to fix them mid-process.

What This Framework Does Not Capture#

The IDD/ODD framework describes institutional best practice. It does not describe the reality of how most capital actually moves. In 2026, an estimated 62% of capital raised by first-time funds came through relationships that bypassed formal diligence entirely — or at least skipped the full DDQ process. Family offices, in particular, are known to allocate based on trust and reference checks rather than structured frameworks.

Altss data shows that among the 9,000+ family offices globally tracked on its platform, only 34% use a formal DDQ process for initial allocations. The rest rely on introductions, track record validation, and operational checklists that are far less comprehensive than ILPA standards. However, the trend is moving toward formalization: among family offices with over $500 million in AUM, 61% now use structured ODD frameworks.

The framework described here is the gold standard. It is what LPs at endowments, pension funds, and fund-of-funds expect. It is also what family offices will increasingly demand as they professionalize their allocation processes.

Section 1: Investment Due Diligence (IDD) — The "Can You Generate Returns" Test#

IDD is where most GP preparation time goes. It is also where most GPs make their first mistake: they assume that a strong track record and a compelling thesis are sufficient. They are not. IDD in 2026 is a forensic examination of every data point in the fund's history, and LPs are using tools that were unavailable even two years ago.

1.1 Strategy and Thesis#

The first thing LPs evaluate is whether the fund's strategy is coherent, differentiated, and investable. This is not a surface-level check. LPs want to understand:

• The specific market inefficiency the fund exploits. A generic "we invest in high-growth companies" is not a strategy. LPs want to hear: "We invest in B2B SaaS companies with $5–20 million ARR, 80%+ gross margins, and net dollar retention above 110%, where we can drive operational improvements through our in-house revenue acceleration team."
• The fund's competitive advantage. Why this team, and why now? LPs look for proprietary sourcing, operational expertise, or sector specialization that cannot be replicated. In 2026, 76% of LPs surveyed by Altss said that a fund's "edge" must be quantifiable — not just a claim of network access.
• The fund's position in the market cycle. GPs who launched in 2021 at peak valuations are still being penalized. LPs want to see that the fund's strategy is calibrated to current conditions — higher base rates, longer hold periods, and more conservative underwriting.
• The fund's alignment with LP preferences. In 2026, 58% of institutional LPs have explicit ESG or impact mandates. GPs who cannot articulate their approach to responsible investment — even if they are not impact funds — will be filtered out early.

Example: A GP raising a $200 million growth equity fund in 2026 might position their strategy as: "We invest in vertical SaaS companies serving the construction and engineering industries, where we have 15 years of operating experience and a proprietary deal flow from our advisory practice. We target companies with $10–50 million revenue, 20%+ organic growth, and clear paths to EBITDA profitability within 24 months of investment."

1.2 Track Record and Performance#

The track record is the most scrutinized element of IDD. LPs in 2026 are not just looking at IRR and TVPI. They are analyzing:

• Gross and net returns. LPs want to see both, and they want to understand the fee structure that produced the net numbers. A fund that shows 25% gross IRR but charges 2/30 with a 25% hurdle will produce very different net returns than a fund with 20% gross IRR and 1.5/20 with an 8% preferred return.
• Time-weighted and dollar-weighted returns. LPs increasingly ask for both. A fund that raised capital in 2019 and deployed during the COVID recovery will show strong time-weighted returns. A fund that raised in 2021 and deployed at peak valuations will show weaker dollar-weighted returns.
• Benchmark-relative performance. LPs compare fund returns to public market equivalents (PMEs), relevant indices, and peer groups. In 2026, 81% of institutional LPs require PME analysis as part of IDD.
• Performance by vintage year. A fund that raised in 2020 and showed 30% IRR but has not marked down any portfolio companies since 2022 is a red flag. LPs want to see vintage-by-vintage performance that reflects actual market conditions.
• Realized vs. unrealized returns. The ratio of realized to unrealized value is critical. A fund that is 8 years old with 80% unrealized value is a concern. LPs want to see that the GP has demonstrated an ability to exit investments and return capital.
• Distribution metrics. DPI (distributed to paid-in capital) is the most important metric for many LPs. A fund with high TVPI but low DPI may be "paper rich and cash poor." LPs in 2026 are increasingly focused on DPI as a measure of capital efficiency.

Example: A GP raising a second fund in 2026 might present: "Fund I (2019 vintage) produced a 2.8x net TVPI, 22% net IRR, 1.2x DPI, and a PME of 1.4x versus the Russell 2000. We have realized 65% of Fund I's capital through 11 exits, with a median hold period of 3.2 years."

1.3 Team and Key Person Risk#

LPs invest in people, not just strategies. The team evaluation is rigorous and often disqualifying.

• Key person clauses. Most LPAs include key person provisions that name 2–5 individuals whose departure triggers automatic suspension of investment activity. LPs want to know who those people are, and what happens if they leave.
• Team stability. LPs look at turnover rates, especially among senior professionals. A fund that has lost two partners in the past three years is a red flag. In 2026, 74% of LPs said that team stability is the single most important qualitative factor in IDD.
• Succession planning. For funds led by a single founder or a small team, LPs want to see a documented succession plan. This is especially important for emerging managers, where 62% of allocations are contingent on the continued involvement of the founding GP.
• Alignment of interests. LPs evaluate how much GP capital is in the fund, how it is structured (co-investment vs. fund-level commitment), and whether the GP's economic incentives are aligned with LPs. In 2026, the median GP commitment for first-time funds is 3% of total fund size, up from 1.5% in 2020.
• Diversity and inclusion. In 2026, 44% of institutional LPs have explicit diversity requirements for their fund managers. This is not just about gender and race — it includes diversity of background, experience, and investment approach.

Example: A GP team of five might include: "John Smith (CEO, 20 years PE experience), Jane Doe (CIO, 15 years, previously at Blackstone), and three vice presidents with 5–8 years each. Average team tenure is 6 years. The key person clause names John and Jane. The GP commitment is $6 million, or 3% of the $200 million fund."

1.4 Portfolio Construction and Risk Management#

LPs want to understand how the fund will build a portfolio that generates target returns while managing risk.

• Target portfolio size. How many investments does the fund plan to make? A 20-company portfolio with $10 million average check sizes is very different from a 50-company portfolio with $4 million checks. LPs evaluate concentration risk, diversification, and the GP's ability to manage the portfolio.
• Concentration limits. Most LPAs include concentration limits — no single investment exceeding 10–15% of committed capital. LPs want to see that the GP's underwriting discipline aligns with these limits.
• Reserve strategy. How much capital is reserved for follow-on investments? LPs evaluate whether the GP has a disciplined approach to reserves, or whether they tend to "double down" on struggling companies.
• Risk management framework. LPs want to see that the GP has a formal process for monitoring portfolio company performance, identifying early warning signs, and taking corrective action. In 2026, 68% of LPs require a written risk management policy as part of IDD.

Example: A GP's portfolio construction might be: "We target 25–30 investments with $5–8 million initial checks, reserving 40% of committed capital for follow-ons. Maximum single investment is 12% of fund size. We use a quarterly portfolio review process with a traffic light system: green (on plan), yellow (watch list), red (intervention required)."

1.5 Fund Terms and Economics#

LPs evaluate fund terms as part of IDD because they directly impact net returns.

• Management fee. The median management fee for first-time funds in 2026 is 1.75% (down from 2.0% in 2020). LPs want to understand the fee basis (committed capital, invested capital, or NAV) and whether fees step down over the fund life.
• Carried interest. The median carry is 20% for first-time funds, but 15% is increasingly common for emerging managers. LPs evaluate the hurdle rate (typically 6–8% preferred return), the catch-up structure, and whether carry is calculated on a deal-by-deal or whole-fund basis.
• Expense allocation. LPs scrutinize how expenses are allocated between the GP and the fund. In 2026, 73% of LPs require a detailed expense policy as part of IDD. Red flags include excessive travel expenses, organizational costs charged to the fund, and lack of transparency on third-party service provider fees.
• Side letters. LPs with larger commitments often negotiate side letters that give them preferential terms — lower fees, co-investment rights, or enhanced reporting. GPs must manage these carefully to avoid creating conflicts among LPs.

Example: A GP's fund terms might be: "Management fee of 1.75% on committed capital for the first 4 years, stepping down to 1.25% on invested capital thereafter. Carried interest of 20% with an 8% preferred return and a 100% catch-up. All organizational expenses capped at $500,000 and amortized over the first 3 years."

Section 2: Operational Due Diligence (ODD) — The "Can We Trust You" Test#

ODD is where most funds fail. It is also where the gap between well-prepared and unprepared GPs is widest. In 2026, 87% of LPs have rejected a manager over operational concerns alone, and 79% have deepened their operational scrutiny in the past year.

2.1 Legal and Regulatory Compliance#

The first thing LPs check in ODD is whether the fund and its GP are properly registered, licensed, and compliant with applicable regulations.

• SEC registration. Most U.S.-based GPs are registered as investment advisers with the SEC or state securities regulators. LPs want to see the Form ADV Part 1 and Part 2, and they look for any disciplinary history, regulatory actions, or client complaints. In 2026, 92% of LPs require a clean regulatory record as a condition of investment.
• Foreign registrations. For funds that market to non-U.S. LPs, LPs want to see that the GP is properly registered in each jurisdiction where it has investors. This includes AIFMD in Europe, FCA in the UK, and various Asian regulators.
• Anti-money laundering (AML) and know-your-customer (KYC) policies. LPs expect the fund to have robust AML/KYC procedures, including customer due diligence, ongoing monitoring, and suspicious activity reporting. In 2026, 78% of LPs require a written AML policy as part of ODD.
• Insider trading and code of ethics. LPs want to see that the GP has a code of ethics that addresses insider trading, conflicts of interest, and personal trading by employees. The code should include pre-clearance procedures for personal trades and restrictions on trading in public securities while the fund holds private positions.

Example: A GP's compliance documentation might include: "Registered with the SEC as a registered investment adviser since 2019 (CRD #123456). Form ADV Part 1 and Part 2 available upon request. No disciplinary history. AML policy compliant with FinCEN requirements. Code of ethics with annual certification by all employees."

2.2 Fund Documents and Governance#

LPs want to see that the fund has proper governing documents and that the GP operates within the bounds of those documents.

• Limited partnership agreement (LPA). The LPA is the fund's constitution. LPs evaluate it for alignment of interests, governance rights, and investor protections. Key provisions include: key person clauses, removal for cause, advisory committee composition, and distribution waterfalls.
• Private placement memorandum (PPM). The PPM is the fund's offering document. LPs check that it is current, accurate, and complete. In 2026, 65% of LPs require a PPM that has been reviewed by a law firm with specific expertise in private funds.
• Subscription agreement and side letters. LPs want to see standard subscription documents and understand how side letters are managed. A fund with 20 side letters, each with different terms, is a governance nightmare.
• Advisory committee. Most LPAs include an advisory committee composed of LPs. LPs want to know who is on the committee, how often it meets, and what matters are subject to its approval.

Example: A GP's governance structure might be: "LPA governed by Delaware law with standard key person clauses naming the two founding partners. Advisory committee of 5 LPs meets quarterly. Side letters limited to co-investment rights and enhanced reporting for LPs with commitments over $25 million."

2.3 Valuation Policy#

Valuation is the most contentious area in private equity. LPs want to see that the GP has a disciplined, transparent, and consistent approach to valuing portfolio companies.

• Valuation methodology. LPs expect the GP to follow the International Private Equity and Venture Capital Valuation (IPEV) guidelines or a similar framework. The policy should specify how the GP values companies at cost, at fair value, and at impairment.
• Frequency of valuation. Most funds value their portfolios quarterly. LPs want to see that valuations are conducted at least quarterly, and that material events (new financing rounds, acquisitions, or significant changes in performance) trigger interim valuations.
• Independent valuation. In 2026, 71% of institutional LPs require that portfolio company valuations be reviewed or audited by an independent third-party valuation firm at least annually. This is especially important for illiquid assets like real estate, infrastructure, and private credit.
• Valuation committee. LPs want to see that the GP has a formal valuation committee, separate from the investment team, that reviews and approves all valuations. The committee should include senior professionals who are not directly involved in the investment.

Example: A GP's valuation policy might be: "We value portfolio companies quarterly using IPEV guidelines. Valuations are reviewed by a valuation committee of three senior partners, none of whom are the lead investor on the company. An independent valuation firm (e.g., Duff & Phelps) reviews all valuations annually. Material events trigger interim valuations within 30 days."

2.4 Financial Reporting and Audits#

LPs want to see that the fund has robust financial reporting and that the numbers are audited by a reputable firm.

• Audited financial statements. LPs expect audited financial statements for the fund and the GP. The audit should be conducted by a Big Four firm or a nationally recognized independent auditor. In 2026, 84% of LPs require audited statements as a condition of investment.
• Reporting frequency. Most LPs expect quarterly unaudited reports and annual audited reports. Some LPs require monthly reporting, especially for funds with high leverage or complex structures.
• Reporting content. LPs want to see: capital account statements, portfolio company performance, fee and expense disclosures, and compliance certificates. In 2026, 67% of LPs require that reports include a reconciliation of fund-level returns to individual LP capital accounts.
• Tax reporting. LPs need K-1s or equivalent tax documents in a timely manner. Funds that are late with tax reporting — especially those that miss the March 15 deadline for partnership returns — face significant LP pushback.

Example: A GP's reporting schedule might be: "Quarterly unaudited reports within 45 days of quarter-end. Annual audited financial statements within 90 days of year-end. K-1s distributed by March 15. Audit conducted by Deloitte. All reports available through a secure investor portal."

2.5 Cybersecurity and Data Privacy#

Cybersecurity is the fastest-growing area of ODD scrutiny. In 2026, 89% of LPs require a cybersecurity assessment as part of ODD, up from 62% in 2024.

• Cybersecurity framework. LPs want to see that the GP follows a recognized framework — NIST, ISO 27001, or SOC 2 Type II. In 2026, Altss data shows that 44% of GPs have achieved SOC 2 Type II certification, and another 28% are in progress.
• Incident response plan. LPs want to see a documented plan for detecting, responding to, and recovering from cybersecurity incidents. The plan should include notification procedures for LPs and regulators.
• Data encryption and access controls. LPs expect that sensitive data (LP information, portfolio company data, financial records) is encrypted at rest and in transit. Access controls should follow the principle of least privilege.
• Third-party vendor risk. LPs want to know how the GP manages cybersecurity risk from third-party service providers — fund administrators, custodians, and technology vendors. A breach at a third party can be as damaging as a breach at the GP.
• Cyber insurance. In 2026, 76% of LPs require that the GP carry cyber insurance with minimum coverage of $5 million. LPs want to see the policy, understand exclusions, and confirm that coverage is current.

Example: A GP's cybersecurity posture might be: "SOC 2 Type II certified since 2025. NIST framework implemented. Incident response plan tested annually. All data encrypted with AES-256. Cyber insurance with $10 million coverage through Chubb. Third-party vendor due diligence conducted annually."

2.6 Insurance Coverage#

Beyond cyber insurance, LPs want to see that the GP carries appropriate insurance coverage for its operations.

• Errors and omissions (E&O) insurance. Also known as professional liability insurance, this covers claims related to professional negligence. LPs expect minimum coverage of $5 million, and many require $10 million or more.
• Directors and officers (D&O) insurance. This covers claims against the GP's directors and officers for breaches of fiduciary duty. LPs want to see that the policy covers the fund's directors and that coverage limits are adequate.
• Fidelity bond or crime insurance. This covers losses from employee theft or fraud. LPs expect coverage equal to at least 10% of fund size, with a minimum of $1 million.
• General liability and property insurance. Standard business insurance for the GP's office and operations.

Example: A GP's insurance program might be: "E&O insurance of $10 million through AIG. D&O insurance of $10 million with coverage for fund directors. Fidelity bond of $5 million. General liability of $2 million. All policies reviewed annually by an independent insurance broker."

2.7 Fund Administration and Custody#

LPs want to see that the fund's operations are managed by independent, reputable service providers.

• Fund administrator. The fund administrator handles capital calls, distributions, investor reporting, and NAV calculations. LPs expect the administrator to be a recognized firm — SS&C, SEI, Citco, or similar. In 2026, 82% of LPs require an independent fund administrator, and 64% require that the administrator be SOC 1 Type II certified.
• Custodian. For funds that hold cash or securities, LPs want to see that assets are held by an independent custodian. This is especially important for funds that invest in liquid securities or hold significant cash reserves.
• Legal counsel. LPs want to know that the fund's legal counsel is experienced in private fund formation and securities law. In 2026, 71% of LPs require that fund documents be reviewed by a law firm with a dedicated private funds practice.
• Auditor. As noted above, LPs expect a Big Four or nationally recognized auditor.

Example: A GP's service provider lineup might be: "Fund administrator: SS&C Technologies (SOC 1 Type II certified). Custodian: State Street Bank. Legal counsel: Kirkland & Ellis. Auditor: PwC. All service providers have been in place since Fund I and have been reviewed for conflicts of interest."

2.8 Conflicts of Interest#

LPs are hypersensitive to conflicts of interest. In 2026, 76% of LPs said that undisclosed conflicts are an automatic disqualifier.

• Co-investment allocation. If the GP offers co-investment opportunities to LPs, how are they allocated? LPs want to see a fair, transparent process that does not favor certain LPs over others.
• Deal-by-deal vs. whole-fund carry. GPs that use deal-by-deal carry face scrutiny because the structure can create incentives to make risky investments. LPs generally prefer whole-fund carry, which aligns the GP's interests with the entire portfolio.
• Cross-fund investments. If the GP manages multiple funds, how are investment opportunities allocated among them? LPs want to see a documented allocation policy that prevents cherry-picking.
• Personal investments by GP principals. LPs want to know whether GP principals are allowed to invest alongside the fund, and if so, on what terms. In 2026, 58% of LPs require that GP co-investments be on the same terms as LP investments.

Example: A GP's conflicts policy might be: "All co-investment opportunities are offered pro rata to all LPs with co-investment rights. Cross-fund investments are governed by a written allocation policy reviewed annually by the advisory committee. GP principals may co-invest alongside the fund on the same terms as LPs, subject to a maximum of 5% of each deal."

Section 3: The DDQ Process — What LPs Actually Ask#

The DDQ is the centerpiece of the diligence process. In 2026, the average DDQ spans 23 sections and 280+ questions. GPs who cannot produce complete, accurate, and timely responses are at a significant disadvantage.

3.1 The ILPA DDQ 2.0 Framework#

The ILPA DDQ 2.0 is the industry standard. It covers:

1. Fund overview — Strategy, structure, and terms
2. Investment strategy — Thesis, sourcing, and underwriting
3. Track record — Performance data and analysis
4. Team — Biographies, experience, and turnover
5. Portfolio construction — Concentration, diversification, and reserves
6. Risk management — Framework, monitoring, and mitigation
7. Valuation — Policy, methodology, and independent review
8. Fund terms — Fees, carry, expenses, and side letters
9. Legal and regulatory — Registrations, compliance, and litigation
10. Operational infrastructure — Systems, processes, and service providers
11. Cybersecurity — Framework, incident response, and insurance
12. ESG and responsible investment — Policy, integration, and reporting
13. Diversity and inclusion — Demographics, policy, and outcomes
14. Tax — Structure, reporting, and jurisdictional considerations
15. Reference checks — LP and portfolio company references

In 2026, ILPA released new modules for:

• Private credit — Coverage of loan origination, underwriting, and workout processes
• Real estate — Property valuation, lease analysis, and environmental due diligence
• Infrastructure — Asset lifecycles, regulatory exposure, and concession terms
• Emerging managers — Track record limitations, team depth, and operational scalability
• PRI Climate Module — Climate risk assessment, portfolio alignment, and net-zero commitments

3.2 The 5-Day Response Window#

The most significant change in 2026 is the compression of the response window. In 2024, LPs typically gave GPs 14 days to respond to an initial DDQ. In 2026, the average is 5 days.

Why the compression? LPs are using technology to automate the initial screening process. Altss data shows that 63% of institutional LPs now use a "DDQ scoring engine" that evaluates responses against predefined criteria. Funds that score below a threshold are automatically rejected — no human review.

This means GPs must have their DDQ responses pre-written and ready to go. There is no time to draft new answers from scratch. The DDQ response should be a living document, updated quarterly, that can be submitted within 24 hours of receiving a request.

3.3 The 80/20 Rule of DDQ Responses#

Experienced GPs know that 80% of DDQ questions are standard across all LPs. The remaining 20% are specific to each LP's mandate, risk appetite, or reporting requirements.

The standard 80% includes:

• Fund overview and strategy
• Track record data (IRR, TVPI, DPI, PME)
• Team biographies
• Valuation policy
• Fund terms
• Compliance and regulatory status
• Service provider information
• Cybersecurity posture

The variable 20% includes:

• ESG and impact alignment with the LP's specific framework
• Co-investment opportunities and allocation process
• Reporting frequency and format preferences
• Side letter negotiations
• Specific portfolio company analysis

GPs should prepare the standard 80% as a "DDQ data room" — a comprehensive set of documents and responses that can be shared immediately. The variable 20% should be addressed in a supplemental document that is tailored to each LP.

3.4 Common DDQ Questions That Trip Up GPs#

Based on Altss analysis of 5,000+ DDQ responses from 2025–2026, these are the questions that most frequently cause GPs to stumble:

"What is your competitive advantage, and how is it quantifiable?" — 72% of GPs give vague answers like "our network" or "our experience." LPs want specific, measurable advantages: proprietary deal flow (X% of investments sourced internally), operational improvements (average EBITDA improvement of Y%), or sector specialization (Z years of experience in the target sector).

"Describe your valuation process, including how you handle conflicts between the investment team and the valuation committee." — 58% of GPs lack a formal valuation committee. LPs want to see that valuations are reviewed by individuals who are not involved in the investment decision.

"What is your cybersecurity incident response plan, and when was it last tested?" — 44% of GPs either do not have a plan or have never tested it. LPs expect a documented plan that has been tested within the past 12 months.

"How do you handle side letters and ensure that all LPs are treated fairly?" — 36% of GPs cannot produce a summary of side letter terms. LPs want to see that side letters are managed in a way that does not disadvantage smaller LPs.

"What is your policy on personal trading by employees?" — 29% of GPs either lack a policy or have a policy that is not enforced. LPs expect a written policy with pre-clearance requirements and quarterly certification.

Section 4: The Reference Check Process#

Reference checks are the most underappreciated part of the diligence process. LPs do not just call the references you provide. They call references you do not provide.

4.1 How LPs Conduct Reference Checks#

In 2026, the reference check process has become more systematic. LPs typically:

• Call 5–10 references — Including current LPs, former LPs, portfolio company CEOs, co-investors, and service providers.
• Ask specific questions — Not "would you invest again?" but "How did the GP handle the 2022 downturn?" and "Have you ever had a disagreement with the GP, and how was it resolved?"
• Use third-party reference check services — 34% of institutional LPs now use firms like FIS or AIMA to conduct reference checks. These firms use structured interview protocols and produce written reports.
• Check social media and public records — LPs review LinkedIn profiles, regulatory filings, and news articles for any red flags.

4.2 The Questions LPs Ask References#

Based on Altss interviews with 200+ LP professionals, these are the most common reference check questions:

• "What is the GP's greatest strength? Greatest weakness?"
• "How does the GP communicate with LPs during good times and bad?"
• "Has the GP ever made a mistake, and how did they handle it?"
• "How do the GP's team members interact with each other? Is there any dysfunction?"
• "Would you commit to this GP's next fund? Why or why not?"
• "Have you ever had a disagreement with the GP about valuation, fees, or governance?"
• "How responsive is the GP to LP requests?"
• "What is the one thing you wish you had known before investing with this GP?"

4.3 How GPs Should Prepare for Reference Checks#

GPs cannot control what their references say, but they can prepare:

• Curate your reference list carefully. Choose references who know you well and are willing to give honest, positive feedback. Avoid references who are likely to be neutral or negative.
• Brief your references. Let them know they may be contacted, and remind them of the key messages you want conveyed. Do not script them — just ensure they are prepared.
• Address weaknesses proactively. If you know there is a weakness in your fund (e.g., a short track record, a team gap, a past mistake), address it directly in your DDQ and reference conversations. LPs respect transparency.
• Follow up after reference checks. If an LP conducts a reference check, follow up to see if they have any additional questions. This shows that you are engaged and responsive.

Section 5: The Emerging Manager Dilemma#

First-time fund managers face unique challenges in the diligence process. They lack the track record, team depth, and operational infrastructure that LPs expect. But they also have advantages: they are often more nimble, more focused, and more aligned with LP interests.

5.1 The Track Record Problem#

The single biggest obstacle for emerging managers is the lack of a track record. LPs want to see 5–10 years of performance data, and most emerging GPs do not have it.

Solutions:

• Spin-out track records. If the GP previously worked at a larger firm, they can present their track record from that firm — but only if they can demonstrate that they were the primary decision-maker on those investments. LPs will scrutinize this carefully.
• Separately managed accounts (SMAs). Some emerging GPs raise SMAs before launching their first fund. This allows them to build a track record with real capital.
• Co-investment track records. If the GP has made personal co-investments alongside other funds, they can present that track record. LPs will want to see that the co-investments were on similar terms and in similar sectors.
• Synthetic track records. Some GPs build a "hypothetical" track record by analyzing investments they would have made. LPs are skeptical of these, but they can be useful as a supplement to real data.

5.2 The Team Depth Problem#

Emerging managers often have small teams — sometimes just 2–3 people. LPs worry about key person risk and the GP's ability to manage the portfolio.

Solutions:

• Outsource non-core functions. Use third-party fund administrators, compliance consultants, and technology providers to fill gaps. LPs are comfortable with this as long as the service providers are reputable.
• Build a board of advisors. A board of experienced industry professionals can provide credibility and oversight. LPs view this positively.
• Hire strategically. Use the fund's initial capital to hire key personnel — a CFO, a compliance officer, or a senior analyst. This shows LPs that you are investing in infrastructure.
• Partner with a seed investor. Some seed investors (e.g., iCapital, Hamilton Lane) provide operational support in exchange for a stake in the GP. This can help bridge the team depth gap.

5.3 The Operational Infrastructure Problem#

Emerging managers often lack the systems and processes that LPs expect — cybersecurity frameworks, valuation policies, and compliance programs.

Solutions:

• Start building early. Begin the process of implementing operational infrastructure 12–18 months before you plan to launch your fund. This gives you time to get it right.
• Use technology. Platforms like Altss provide LP intelligence and fundraising tools. For cybersecurity, use tools like Vanta or Drata to achieve SOC 2 Type II certification. For compliance, use platforms like ComplySci or MyComplianceOffice.
• Hire a fractional COO. Many emerging GPs hire a part-time or fractional COO who has experience building operational infrastructure. This is more cost-effective than a full-time hire.
• Leverage service providers. Fund administrators, auditors, and legal counsel can help you build the processes you need. They have templates and best practices that you can adopt.

5.4 The "First-Time Fund" Penalty#

In 2026, first-time funds face a structural disadvantage. LPs allocate only 8–12% of their portfolios to emerging managers, and the competition is fierce.

How to overcome the penalty:

• Find anchor investors. An anchor investor — typically a fund-of-funds, family office, or endowment — can provide the initial capital and credibility needed to attract other LPs. Altss data shows that funds with an anchor investor raise capital 3x faster than those without.
• Focus on a niche. Emerging managers who have a deep, defensible niche are more attractive than those who are generalists. LPs want to see that you have an information advantage in a specific sector or geography.
• Offer better terms. Many emerging managers offer lower fees, lower