The LP Due Diligence Checklist Framework

Framework Summary

Due diligence is the process by which allocators evaluate whether a fund manager deserves capital. It is not a formality—it is the mechanism that separates disciplined allocators from those who lose money to avoidable mistakes.

This framework provides a structured, comprehensive checklist for LP due diligence across six core domains: Investment Strategy and Process, Team and Organization, Track Record and Performance, Terms and Economics, Operations and Compliance, and Legal and Documentation. Each domain includes specific questions, red flags, and guidance on how diligence requirements differ between institutional allocators and family offices.

The framework serves two audiences:

For allocators (LPs): A systematic structure for manager evaluation that ensures completeness, identifies risks, and supports defensible investment committee decisions. The framework supports preparation of IC memos that document diligence findings and investment rationale.

For fund managers (GPs): A roadmap for diligence preparation that anticipates allocator questions, identifies documentation gaps, and accelerates fundraising by demonstrating institutional readiness.

Due diligence is bidirectional. Allocators evaluate managers; managers should evaluate allocators. The best LP relationships are built on mutual fit—not just capital transfer.

Why Due Diligence Frameworks Matter

The 2024-2025 fundraising environment exposed the cost of inadequate diligence. Allocators who committed to managers based on headline returns without examining attribution, team stability, or operational infrastructure found themselves in funds with concentrated losses, governance failures, or liquidity mismatches.

According to industry data, funds with material operational deficiencies identified during diligence—but funded anyway—experienced loss rates 2.4x higher than funds that passed operational screens. The cost of skipping diligence is not abstract; it shows up in realized losses.

Diligence failures typically fall into three categories:

Incomplete coverage: Allocators examine investment strategy in detail but skip operational due diligence, assuming "if returns are good, operations must be fine." They discover the error when NAV calculations are wrong, capital calls are mishandled, or cybersecurity breaches expose LP data.

Confirmation bias: Allocators who want to invest in a manager find reasons to dismiss red flags rather than investigate them. A track record gap gets explained away; a key person departure gets minimized; a terms issue gets deferred to side letter negotiation that never happens.

Process shortcuts: Allocators under pressure to deploy capital skip steps—no reference calls, no on-site visit, no legal review of the LPA. The fund closes, and the issues that would have surfaced in proper diligence emerge during fund life when remediation is expensive or impossible.

A structured framework prevents these failures by ensuring every domain gets examined, every red flag gets documented, and every decision gets made with complete information.

How Family Office Diligence Differs from Institutional Diligence

Diligence processes vary systematically by allocator type. Single-family offices, multi-family offices, endowments, pensions, sovereign wealth funds, and funds of funds approach manager evaluation with different priorities, timelines, and depth requirements.

Institutional Allocator Diligence

Characteristics: Formal, documented, committee-driven. Diligence follows defined processes with multiple approval gates. Decisions require IC memos, board approvals, and documented rationale.

Timeline: 12-24 months from first meeting to commitment is typical. Large institutions may take longer; some have fixed calendar windows for new manager approvals.

Depth: Comprehensive across all domains. Operational due diligence (ODD) is often conducted by dedicated teams or outsourced to specialized firms. Legal review is extensive; side letter negotiation is standard.

Documentation requirements: Full DDQ completion, on-site visits, multiple reference calls, background checks, audited financials, compliance certifications, cybersecurity assessments.

Decision authority: Investment committees with defined approval thresholds. CIO discretion typically exists only for small commitments or re-ups to existing managers.

Family Office Diligence

Characteristics: Variable by office. Some family offices run institutional-grade processes; others make decisions based on principal conviction with minimal formal diligence. Principal-led decision making is common—the family principal or patriarch/matriarch may override formal process if they have conviction.

Timeline: Highly variable. Some family offices commit within weeks of first meeting; others take years. Timeline often depends on relationship depth, not process stages.

Depth: Often deep on investment strategy (principals frequently have operating experience and ask penetrating questions) but lighter on operations, legal terms, and compliance. Many family offices lack dedicated ODD capability.

Documentation requirements: Varies widely. Some request full DDQs; others make decisions based on a pitch deck and two conversations. Principals often rely on their own judgment and network references rather than formal documentation.

Decision authority: Often concentrated in one or two individuals. The principal's trust in the GP—built through relationship, shared network, or aligned values—may matter more than any specific diligence finding.

Implications for This Framework

This framework provides comprehensive coverage suitable for institutional allocators while flagging which elements family offices commonly prioritize, skip, or modify. Family offices should use the framework as a menu—selecting elements based on their own governance, risk tolerance, and relationship with the manager—rather than treating every item as mandatory.

For GPs, understanding these differences enables tailored diligence preparation: full institutional packages for pension and endowment prospects, streamlined materials with relationship emphasis for family office conversations.

The Due Diligence Questionnaire (DDQ)

The DDQ is the foundational document in manager evaluation. It provides structured information that enables systematic comparison across managers and creates a written record for IC review.

DDQ Standards and Formats

The Institutional Limited Partners Association (ILPA) publishes standardized DDQ templates that have become the de facto industry standard for institutional allocators. The ILPA DDQ covers:

Fund Information: Strategy description, target size, economics, terms, service providers Investment Team: Bios, tenure, compensation, succession planning Investment Process: Sourcing, underwriting, portfolio construction, exit strategy Track Record: Fund-level and deal-level performance with attribution Operations: Infrastructure, compliance, risk management, cybersecurity ESG: Environmental, social, governance policies and integration

Managers should maintain a current ILPA-format DDQ that can be provided within 24-48 hours of request. Delays in DDQ delivery signal either operational disorganization or reluctance to share information—both red flags.

DDQ vs. Pitch Deck vs. Data Room

These three documents serve different purposes in the diligence process:

Pitch Deck: Marketing document designed to generate interest. Highlights thesis, team, and returns. Typically 15-25 pages. Purpose is to secure a meeting, not close a commitment.

DDQ: Structured information document designed for systematic evaluation. Comprehensive coverage across all domains. Typically 50-100+ pages with exhibits. Purpose is to enable IC-level analysis.

Data Room: Repository of supporting documents referenced in the DDQ. Includes legal documents, compliance policies, audited financials, deal memos, reference lists. Purpose is to verify DDQ claims and support deep-dive diligence.

Allocators who make decisions based on pitch decks without reviewing DDQs and data rooms are not conducting adequate diligence.

Common DDQ Red Flags

Incomplete or evasive answers: Questions answered with "N/A" or "available upon request" when the information should be readily available.

Inconsistent information: Numbers in the DDQ that don't match the pitch deck or data room. Performance figures that shift between documents.

Generic responses: Boilerplate language that could apply to any manager rather than specific, substantive answers.

Missing attribution: Track record presented without clear indication of which current team members were responsible for investment decisions.

Outdated information: DDQ that hasn't been updated in 6+ months, with stale team information or fund details.

Diligence for Emerging Managers vs. Established Managers

The diligence framework applies to all managers, but emphasis and approach differ based on manager maturity.

Emerging Manager Considerations

Emerging managers—typically Fund I or Fund II—present unique diligence challenges:

Track record portability: Returns may have been generated at prior firms. Diligence must determine whether the current team made the investment decisions and whether the process is replicable in the new structure.

Operational infrastructure: First-time managers may have limited operational history. Diligence focuses on plans and commitments rather than track record of execution.

Team stability: Without multiple fund cycles together, there's limited evidence of how the team performs through stress. References and prior working relationships become more important.

Economics and alignment: GP commitment may be limited by personal wealth constraints. Evaluate alignment through other mechanisms: co-investment, vesting, key person breadth.

Institutional readiness: Many emerging managers underestimate LP reporting, compliance, and operational requirements. Assess whether the team understands institutional expectations.

Established Manager Considerations

Managers with Fund IV+ history present different diligence priorities:

Style drift: Has the strategy evolved materially? Are Fund VII investments comparable to Fund III, or has the firm drifted into different markets, deal sizes, or structures?

Team turnover and succession: Has the team that generated historical returns departed? Is there a credible next generation?

Scale effects: Has fund size growth affected selectivity, hold periods, or return potential? Are larger funds generating comparable returns to smaller vintages?

Organizational complexity: Larger platforms may have multiple strategies, shared resources, and complex fee arrangements. Understand how resources and conflicts are managed.

Governance track record: With multiple fund cycles, there's evidence of how the GP handles difficult situations—conflicts, key person events, distressed exits, continuation vehicles. Review specific instances.

Domain 1: Investment Strategy and Process

Investment diligence evaluates whether the manager's strategy is coherent, differentiated, and executable—and whether the process for implementing that strategy is disciplined and repeatable.

Strategy Definition

Core questions:

• What is the investment thesis? What market inefficiency or structural advantage does the strategy exploit?
• What is the target return profile? How does it compare to relevant benchmarks and peer strategies?
• What is the risk profile? What are the primary sources of return and loss?
• What defines the opportunity set? Geography, sector, stage, deal size, security type?
• How has the strategy evolved across funds? What drove changes?

Red flags:

• Strategy description that changes based on audience or sounds like marketing rather than conviction
• Returns attributed to "alpha" without clear explanation of edge or repeatability
• Strategy drift between funds without coherent rationale
• Opportunity set too broad (suggests lack of focus) or too narrow (suggests capacity constraints)

Family office vs. institutional emphasis: Family offices with operating backgrounds often probe strategy depth intensively—they've built businesses and can identify GP hand-waving. Institutions may rely more on consultant benchmarking and peer comparison.

Investment Process

Core questions:

• How are opportunities sourced? What percentage is proprietary vs. intermediated vs. auction?
• What is the screening and filtering process? How many opportunities reviewed vs. closed?
• What is the underwriting process? Who participates? What analysis is required?
• How are investment decisions made? IC structure, voting, veto rights, deal champion role?
• What is the hold period? What drives exit timing and method?

Red flags:

• Sourcing described as "relationships" without specificity on how relationships generate deal flow
• IC process that is rubber-stamp for deal champion or dominated by single individual
• No documented underwriting standards or investment criteria
• Exit strategy that depends on favorable market conditions rather than value creation

Checklist items:

• [ ] Investment thesis documented and internally consistent
• [ ] Target returns specified with realistic assumptions
• [ ] Sourcing channels identified with historical conversion data
• [ ] Underwriting process documented with decision criteria
• [ ] IC structure defined with clear authority and accountability
• [ ] Portfolio construction guidelines (concentration limits, pacing, reserves)
• [ ] Value creation plan by investment type
• [ ] Exit strategy framework with historical exit analysis

Portfolio Construction

Core questions:

• How many investments per fund? What is target position size?
• What are concentration limits by investment, sector, geography?
• How are reserves managed? What is follow-on strategy?
• How is portfolio risk monitored? What triggers rebalancing or risk reduction?

Red flags:

• Concentration that exceeds stated limits without IC approval
• Reserve policy that doesn't match follow-on behavior
• No systematic portfolio monitoring or risk framework
• Portfolio companies clustered in correlated sectors or geographies without acknowledgment

Domain 2: Team and Organization

Team diligence evaluates whether the people managing capital have the capability, stability, and alignment to execute the strategy over a full fund cycle.

Team Composition and Capability

Core questions:

• Who are the key investment professionals? What is their background and track record?
• Who makes investment decisions? Who has veto authority?
• What is the team structure? How are responsibilities divided?
• What is the experience level across the team? Junior/senior mix?
• What functional capabilities exist beyond investment (operations, finance, legal, IR)?

Red flags:

• Track record attributed to individuals who have left the firm
• Investment decisions concentrated in single individual with no succession plan
• Team composition mismatched to strategy (e.g., no operating partners for value creation-dependent PE strategy)
• High ratio of junior to senior professionals

Key person assessment: Key person risk is among the most important diligence areas. Evaluate:

• Who are the designated key persons in fund documents?
• What happens if a key person departs? (key person clause terms)
• Is the investment process dependent on specific individuals or institutionalized?
• What is the succession plan?

Team Stability and Retention

Core questions:

• What is team tenure? How long have key professionals worked together?
• What has been historical turnover? Who has left and why?
• What is the compensation structure? How are professionals retained?
• What is the carry allocation? How broad is economic participation?

Red flags:

• Multiple senior departures in recent years
• Compensation structure that concentrates economics in founders
• Carry allocation that doesn't extend to rising professionals
• Team members with outside activities that compete for attention

Family office vs. institutional emphasis: Institutions often require formal team stability analysis and may have policies against investing with firms experiencing recent senior turnover. Family offices may weight relationship with specific individuals more heavily—and may actually prefer concentrated key person structures if they trust that individual.

Culture and Governance

Core questions:

• How are disagreements resolved? What happens when IC members disagree?
• What is the decision-making culture? Consensus vs. hierarchical?
• How is information shared internally? Meeting cadence and format?
• What is the firm's approach to mistakes? How are losses analyzed?

Red flags:

• Culture of blame that discourages transparency about mistakes
• Founder dominance that prevents constructive challenge
• No structured process for post-investment review or loss analysis

Checklist items:

• [ ] Key investment professionals identified with backgrounds verified
• [ ] Track record attribution to current team documented
• [ ] Organizational chart with reporting relationships
• [ ] Key person clause terms understood
• [ ] Team tenure and turnover history analyzed
• [ ] Compensation and carry allocation structure reviewed
• [ ] Succession planning documented or discussed
• [ ] Culture and governance assessed through references

Domain 3: Track Record and Performance

Performance diligence evaluates whether historical results are real, attributable to the current team, and indicative of future capability.

Performance Metrics

Core questions:

• What are fund-level returns? IRR, TVPI, DPI, MOIC by fund and vintage?
• What are gross vs. net returns? What is the fee drag?
• How do returns compare to relevant benchmarks and peer funds?
• What is the return dispersion across investments? Concentration in winners vs. losers?
• What is the loss ratio? How many investments resulted in material loss?

Red flags:

• Returns driven by one or two investments (concentration risk)
• High TVPI with low DPI (unrealized returns dependent on marks)
• Gross/net spread that exceeds industry norms
• Benchmark comparisons using inappropriate or self-selected benchmarks
• Performance attribution that relies on investments made by departed team members

Understanding the metrics:

DPI measures realized cash returned to LPs—the most trusted metric because it represents actual money back. A fund with 1.5x TVPI but 0.3x DPI has mostly unrealized value; a fund with 1.3x TVPI and 1.1x DPI has returned most of its value in cash.

TVPI combines realized and unrealized value. Early in fund life, TVPI is dominated by unrealized marks—making valuation policy critical. Late in fund life, TVPI should converge toward DPI as remaining positions exit.

Net IRR vs. Gross IRR: Gross IRR is return before fees; net IRR is what LPs actually receive. The spread reveals fee impact. A fund with 25% gross IRR and 18% net IRR is losing 700bps to fees and carry—allocators should understand whether that spread is reasonable for the strategy.

Attribution and Repeatability

Core questions:

• Who made the investment decisions for each deal in the track record?
• Are the people who generated returns still at the firm?
• What was the investment thesis for each deal? Was the thesis correct?
• What value creation actions drove returns? Were they GP-driven or market-driven?
• Are the conditions that enabled historical returns still present?

Red flags:

• Track record includes deals made at prior firms without clear portability
• Returns driven by market timing or beta rather than investment selection
• Value creation claims without supporting evidence
• Strategy or market conditions that have changed materially since track record was generated

Family office vs. institutional emphasis: Institutions typically require audited track records, third-party verification, and formal attribution analysis. Family offices may accept manager-provided data and rely on their own assessment of repeatability based on conversations and references.

Valuation and Marks

Core questions:

• What is the valuation policy? How are unrealized investments marked?
• Who performs valuations? Independence from investment team?
• How have marks evolved? Write-up/write-down patterns?
• How have marks compared to eventual realizations?

Red flags:

• Valuation policy that is vague or allows investment team discretion
• Marks that consistently write up without realizations to support
• Large gaps between final marks and actual exit values
• No independent valuation process or third-party valuation provider

Checklist items:

• [ ] Fund-level returns by vintage (IRR, TVPI, DPI, MOIC)
• [ ] Gross vs. net return analysis with fee drag calculation
• [ ] Benchmark comparison using appropriate peer set
• [ ] Deal-level attribution with current team identification
• [ ] Loss analysis (number, magnitude, causes of impairments)
• [ ] Valuation policy reviewed with historical mark-to-exit analysis
• [ ] Performance persistence across market cycles evaluated
• [ ] Return drivers identified (selection, timing, leverage, market)

Domain 4: Terms and Economics

Terms diligence evaluates whether fund economics align GP and LP interests and whether legal structures provide adequate LP protection.

Management Fee

Core questions:

• What is the management fee rate? Does it step down after investment period?
• What is the fee base? Committed capital vs. invested capital vs. NAV?
• What expenses are charged to the fund vs. covered by management fee?
• Are there fee offsets for transaction, monitoring, or other fees?

Red flags:

• Fee base that doesn't step down after investment period
• Expense definitions that allow pass-through of costs that should be covered by management fee
• Fee offsets less than 100% (GP keeps portion of portfolio company fees)
• Organizational expenses that exceed market norms

Market context: Standard management fees for buyout funds are 1.5-2.0% on committed capital during investment period, stepping down to 1.5-1.75% on invested capital or NAV thereafter. Venture funds typically charge 2.0-2.5%. Fees above these ranges require justification; fees below may signal competitive dynamics or smaller fund economics.

Carried Interest and Waterfall

Core questions:

• What is the carry rate? (typically 20%, sometimes higher for established managers)
• What is the preferred return/hurdle rate? (typically 8%)
• What is the waterfall structure? European (whole fund) vs. American (deal-by-deal)?
• Is there a GP catch-up? At what rate?
• Is there a clawback provision? Is it joint and several?

Red flags:

• Carry rate above 20% without exceptional track record justification
• No preferred return or hurdle
• Deal-by-deal carry without adequate clawback protection
• Clawback that is not joint and several (limited to specific partners)
• GP catch-up that is too aggressive (100% until equalized)

Understanding GP economics: The interplay of fees, carry, and offsets determines actual GP economics. A fund with 2% management fee, 20% carry, 8% hurdle, European waterfall, and 100% fee offset has different GP incentives than one with 1.5% fee, 25% carry, no hurdle, deal-by-deal waterfall, and 50% fee offset. Evaluate the full package, not individual terms in isolation.

GP Commitment

Core questions:

• What is the GP commitment amount and percentage of fund?
• Is the commitment funded from GP cash or financed/waived fees?
• How is the GP commitment allocated among partners?

Red flags:

• GP commitment below 1% of fund (suggests limited alignment)
• Commitment funded through fee waiver rather than cash
• Commitment concentrated in founders rather than broader team

Family office vs. institutional emphasis: Institutions often have minimum GP commitment requirements (1-3% of fund). Family offices may weight alignment more subjectively—a first-time manager committing their entire liquid net worth may be more aligned than an established manager committing 1% as a formality.

Fund Terms and Governance

Core questions:

• What is the fund term? Extension provisions?
• What is the investment period? Commitment period provisions?
• What are LP governance rights? LPAC composition and authority?
• What are removal provisions? No-fault divorce terms?
• What are key person provisions? Trigger events and consequences?

Red flags:

• Fund term extensions at GP discretion without LP consent
• LPAC with limited authority or GP-controlled composition
• No-fault removal requiring supermajority that is practically impossible
• Key person provisions that allow easy replacement without LP input

Vintage year considerations: Fund terms affect vintage classification and benchmark comparison. Understand how the fund's term structure compares to peers and whether extensions could affect vintage-adjusted performance.

Checklist items:

• [ ] Management fee structure (rate, base, step-down, expenses)
• [ ] Carried interest terms (rate, hurdle, waterfall, catch-up, clawback)
• [ ] GP commitment (amount, source, allocation)
• [ ] Fund term and extension provisions
• [ ] Investment period and commitment period terms
• [ ] LPAC composition and authority
• [ ] Key person provisions and consequences
• [ ] Removal and no-fault provisions
• [ ] Side letter provisions and MFN rights

Domain 5: Operations and Compliance

Operational due diligence evaluates whether the infrastructure supporting the investment process is robust, whether service providers are appropriate, and whether compliance and risk management frameworks are adequate.

Service Provider Infrastructure

Core questions:

• Who is the fund administrator? Reputation, capabilities, experience with similar funds?
• Who is the auditor? Firm reputation, partner experience, audit scope?
• Who is the legal counsel? Fund formation experience, LP representation?
• Who is the prime broker/custodian (if applicable)?
• What other service providers support the fund (tax, valuation, compliance)?

Red flags:

• Unknown or inexperienced service providers
• Administrator with limited experience in the strategy type
• Auditor that is not a recognized firm or lacks private fund experience
• Recent changes in key service providers without explanation
• Conflicts of interest between service providers and GP

Family office vs. institutional emphasis: Institutions often have approved service provider lists and may decline funds using providers not on the list. Family offices typically defer to GP judgment on service providers but should ensure basic quality standards.

Operational Processes

Core questions:

• How are capital calls and distributions processed?
• How is NAV calculated and reported?
• What is the investor reporting package and cadence?
• How are LP inquiries handled?
• What is the data room and document management process?

Red flags:

• Manual processes for critical functions (capital calls, NAV, reporting)
• Reporting that is delayed, inconsistent, or lacking detail
• No dedicated investor relations function
• Data room that is disorganized or incomplete

Compliance and Regulatory

Core questions:

• What is the regulatory status? SEC registration, state registrations, non-US registrations?
• What is the compliance program structure? CCO, policies, testing?
• What are the principal compliance risks for the strategy?
• What is the regulatory examination history? Any enforcement actions?
• How are conflicts of interest identified and managed?

Red flags:

• No dedicated compliance function or outsourced CCO with limited engagement
• Compliance policies that are generic templates without strategy-specific adaptation
• History of regulatory issues, enforcement actions, or examination deficiencies
• Conflicts of interest that are not disclosed or inadequately managed

Risk Management

Core questions:

• What is the risk management framework? Who owns risk?
• How is investment risk monitored? Portfolio concentration, liquidity, market exposure?
• How is operational risk managed? Business continuity, disaster recovery?
• What is the cybersecurity posture? Policies, controls, incident history?
• What insurance coverage exists? E&O, D&O, cyber?

Red flags:

• No formal risk management framework or designated risk owner
• Cybersecurity posture that doesn't meet institutional standards
• No business continuity or disaster recovery plan
• Inadequate insurance coverage for fund size and strategy

KYC/AML compliance: Verify the GP's KYC/AML policies and procedures. Ensure they conduct appropriate investor screening and can meet LP compliance requirements.

Checklist items:

• [ ] Fund administrator identified and assessed
• [ ] Auditor identified with partner experience verified
• [ ] Legal counsel identified with fund formation experience
• [ ] Other service providers reviewed
• [ ] Capital call and distribution processes documented
• [ ] NAV calculation and reporting processes reviewed
• [ ] Investor reporting package and cadence confirmed
• [ ] Compliance program structure and CCO identified
• [ ] Regulatory registration status verified
• [ ] Conflicts of interest policy reviewed
• [ ] Risk management framework assessed
• [ ] Cybersecurity policies and controls evaluated
• [ ] Business continuity and disaster recovery plans reviewed
• [ ] Insurance coverage verified

Domain 6: Legal and Documentation

Legal diligence evaluates whether fund documents protect LP interests, whether terms are market-standard, and whether legal risks are acceptable.

Fund Documents Review

Core documents:

• Limited Partnership Agreement (LPA): The governing document defining fund terms, GP authority, LP rights, and economic arrangements.
• Private Placement Memorandum (PPM): Disclosure document describing strategy, risks, team, and terms.
• Subscription Agreement: LP's agreement to invest, including representations and commitments.
• Side Letter: Negotiated terms specific to an LP that modify or supplement the LPA.

Key LPA provisions to review:

• Investment restrictions and concentration limits
• Borrowing and leverage authority
• Valuation policy and procedures
• Fee and expense definitions
• Conflict of interest provisions
• LPAC authority and composition
• Key person and removal provisions
• Extension and wind-down provisions
• Amendment and waiver provisions
• Indemnification and exculpation

Red flags:

• Broad GP discretion without LP checks
• Vague expense definitions that allow pass-through of questionable costs
• Limited LPAC authority on conflicts
• Weak key person protections
• Amendment provisions that allow material changes without LP consent
• Exculpation that shields GP from gross negligence

Side Letter Negotiation

Common side letter provisions:

• Most favored nation (MFN) rights
• Co-investment rights and allocation priority
• Fee discounts or modifications
• Reporting enhancements
• Transfer and liquidity provisions
• Excuse and exclusion rights (for certain investments)
• Regulatory and compliance accommodations

Family office vs. institutional emphasis: Institutions typically negotiate comprehensive side letters and have established side letter templates. Family offices may accept standard terms or negotiate selectively on provisions that matter most (often co-investment rights and reporting).

Legal Risks and Litigation

Core questions:

• Are there any pending or threatened legal actions involving the GP or fund?
• Are there any regulatory investigations or enforcement proceedings?
• What is the litigation history of the GP and key personnel?
• Are there any material disputes with LPs, portfolio companies, or counterparties?

Red flags:

• Undisclosed litigation or regulatory matters
• Pattern of disputes with LPs or service providers
• Key personnel with personal legal or regulatory issues

Checklist items:

• [ ] LPA reviewed with key provisions assessed
• [ ] PPM reviewed for completeness and accuracy
• [ ] Subscription agreement terms understood
• [ ] Side letter negotiation points identified
• [ ] MFN provisions and process understood
• [ ] Regulatory filings and registration verified
• [ ] Litigation and regulatory history checked
• [ ] Background checks on key personnel completed

Reference Calls and On-Site Visits

Reference Calls

Reference calls provide qualitative context that documents cannot capture. Effective references include:

LP references: Other allocators who have invested with the manager. Ask about responsiveness, transparency, reporting quality, how the GP handled difficult situations, and whether they would re-up.

Portfolio company references: CEOs, CFOs, or board members of companies the GP has backed. Ask about the GP's value-add, behavior during stress, and whether the GP delivered on promises made during diligence.

Co-investor references: Other investors who have co-invested alongside the GP. Ask about deal process, information sharing, and alignment.

Service provider references: Administrator, auditor, counsel. Ask about professionalism, responsiveness, and any concerns.

Industry references: Competitors, peers, intermediaries who know the GP's reputation. Often the most candid source of negative information.

Reference call best practices:

• Conduct 8-15 reference calls for new manager relationships
• Include references not provided by the GP (back-channel references)
• Ask open-ended questions that allow negative information to surface
• Document calls with specific quotes and observations
• Follow up on any concerning signals

Reference Call Question Framework

For LP References:

• How would you characterize the GP's communication style and frequency?
• Can you describe a situation where the fund faced challenges? How did the GP handle it?
• How does reporting quality compare to other managers in your portfolio?
• Have there been any surprises—positive or negative—since you committed?
• Would you re-up to the next fund? Why or why not?
• Is there anything you wish you had known before committing?

For Portfolio Company References:

• How did the GP source this investment? What was the process like?
• What value has the GP added beyond capital?
• How does the GP behave when things aren't going well?
• How would you compare this GP to other investors on your cap table?
• Would you want this GP involved in your next company?

For Back-Channel References:

• What is the GP's reputation in the market?
• Have you heard anything—positive or negative—about how they operate?
• Would you invest alongside them? Why or why not?
• Is there anything an LP should know before committing?

On-Site Visits

On-site visits reveal information that remote diligence cannot. Key observations:

Office and culture: Does the office reflect the firm's stated culture? How do team members interact? What is the energy level?

Team dynamics: Observe meetings and interactions. Who speaks? Who defers? Is there healthy debate?

Infrastructure: Is the technology and operational infrastructure appropriate for fund size?

Document review: Review original documents (performance records, investment memos, compliance files) on-site.

Meeting with junior team: Junior professionals often provide candid perspective on culture, workload, and team dynamics that senior partners may not reveal.

Family office vs. institutional emphasis: Institutions often require on-site visits as policy. Family offices may substitute relationship depth and informal interactions for formal site visits—though an on-site visit can surface issues that casual interaction misses.

Quantitative Diligence Deep Dive

Performance Attribution Analysis

Beyond headline returns, rigorous diligence requires understanding how returns were generated:

Deal-level attribution: Break down fund returns by investment. Identify which deals drove performance and which detracted. Calculate return contribution by deal.

Time-weighted vs. money-weighted returns: Understand the difference between IRR (money-weighted) and time-weighted returns. IRR can be manipulated through timing; time-weighted returns show underlying investment skill.

Gross vs. net spread analysis: Calculate the difference between gross and net returns. Understand what's driving the spread (management fees, fund expenses, carry). Compare to peer funds.

Vintage-adjusted benchmarking: Compare returns to appropriate benchmarks for strategy and vintage. A 2021 vintage venture fund should be compared to 2021 vintage venture peers, not 2017 vintages in a different return environment.

Public market equivalent (PME): Calculate how fund returns compare to what an LP would have earned investing in public markets with the same cash flow timing. PME above 1.0x indicates value creation vs. public alternatives.

Loss Analysis

Understanding losses is as important as understanding wins:

Loss ratio: What percentage of investments resulted in material loss (>50% impairment)?

Loss magnitude: What was the average and maximum loss across impaired investments?

Loss timing: When in the fund life did losses occur? Early losses that are subsequently offset by winners suggest normal portfolio construction; late losses suggest deteriorating discipline.

Loss drivers: Why did losses occur? Market conditions, execution failures, thesis errors, or unforeseen events? Are loss drivers systemic or idiosyncratic?

Response to losses: How did the GP respond? Was there honest post-mortem analysis? Did processes change as a result?

Scenario Analysis

Stress test the fund's historical performance under different conditions:

Entry multiple sensitivity: How would returns change if entry valuations had been 20% higher?

Exit timing sensitivity: How would returns change if exits had been delayed by 12-24 months?

Loss rate sensitivity: How would returns change with 2x the historical loss rate?

Fee sensitivity: How do returns compare at different fee levels? What's the break-even gross return needed to achieve target net returns?

Diligence Timelines and Process

Institutional Allocator Process

Phase 1: Screening (1-2 months)

• Initial meeting and materials review
• Preliminary fit assessment against mandate
• Decision to proceed to full diligence or pass

Phase 2: Investment Diligence (2-4 months)

• DDQ completion and review
• Performance analysis and attribution
• Strategy deep dive and IC meetings

Phase 3: Operational Diligence (2-3 months)

• ODD assessment (internal or outsourced)
• Service provider verification
• Compliance and risk review

Phase 4: Legal and Terms (1-2 months)

• LPA review and markup
• Side letter negotiation
• Subscription documentation

Phase 5: Approval and Closing (1-2 months)

• IC memo preparation and presentation
• Committee approval
• Final documentation and funding

Total timeline: 9-18 months typical; can extend to 24+ months for new relationships with large institutions.

Family Office Process

Family office timelines vary dramatically based on governance structure:

Principal-led decision making: Can be as fast as 2-4 weeks if the principal has conviction and the office has streamlined processes.

Committee-driven family offices: 3-6 months typical, similar to smaller institutions.

Multi-generational governance: Can extend to 12+ months if multiple family members or generations must approve.

Key timeline drivers for family offices:

• Relationship depth with GP (longer relationships = faster decisions)
• Principal availability and attention
• Competing priorities and liquidity events
• Trust level based on shared network

The GP Perspective: Preparing for LP Diligence

For fund managers, diligence preparation is as important as investor targeting. Managers who anticipate allocator questions and provide organized, complete information close faster and with less friction.

Documentation Readiness

Essential materials:

• DDQ (ILPA template preferred for institutional allocators)
• Track record with attribution to current team
• Fund-level and deal-level performance data
• Organizational chart and team bios
• Investment process documentation
• Compliance policies and procedures
• Sample reporting package
• Reference list (LPs, portfolio companies, co-investors)
• Data room with organized documents

Documentation quality signals:

• Materials are consistent across documents (no conflicting information)
• Track record is presented clearly with appropriate benchmarks
• DDQ answers are substantive, not boilerplate
• Data room is organized and complete
• Updates are provided proactively as information changes

Anticipating Red Flags

Managers should proactively address potential concerns:

• Team turnover: Explain departures and how they affected investment process
• Performance issues: Acknowledge underperformance with honest attribution
• Terms that differ from market: Explain rationale and be prepared to negotiate
• Operational gaps: Describe plans to address deficiencies

Trying to hide issues backfires. Allocators conducting proper diligence will find problems; discovering them through back-channel references rather than GP disclosure destroys trust.

Differentiated Preparation by LP Type

For institutional allocators: Prepare comprehensive, formal documentation. Assume 12-18 month timeline. Budget significant time for ODD, legal review, and IC preparation. Assign dedicated IR resources.

For family offices: Prepare materials that can be consumed quickly by principals with limited time. Lead with strategy and relationship; provide documentation on request. Be flexible on timeline and process.

For endowments and foundations: Similar to institutional, but often more focused on mission alignment, ESG considerations, and long-term partnership.

For sovereign wealth funds: Extended timelines, multiple layers of approval, significant legal and compliance requirements. Prepare for relationship-building over years.

Common Diligence Failures and How to Avoid Them

LP-Side Failures

Relying solely on GP-provided references: GP-provided references are screened to be positive. Conduct back-channel references through your own network.

Skipping operational diligence: Investment strategy is important, but operational failures cause realized losses. Don't assume operations are fine because returns look good.

Confirmation bias in IC process: If the IC wants to invest, they'll rationalize red flags. Assign a devil's advocate role to someone who must present the case against.

Time pressure driving shortcuts: Pressure to deploy capital leads to skipped steps. The cost of a bad investment exceeds the cost of missing a closing.

Inadequate legal review: LPAs are complex; side letters create commitments. Invest in proper legal review even if it extends timeline.

GP-Side Failures

Inconsistent information across materials: Different numbers in DDQ, pitch deck, and data room destroy credibility. Maintain single source of truth.

Defensive response to questions: Allocators ask hard questions because it's their job. Defensive or evasive responses signal problems.

Over-promising during diligence: Commitments made during diligence become expectations. Don't promise reporting, co-investment, or terms you can't deliver.

Poor diligence process management: Losing track of what's been provided, slow responses, disorganized data rooms. These signal how the GP will manage LP relationships.

How Altss Supports LP Diligence

Effective diligence requires intelligence about managers, markets, and peers. Altss provides data and signals that support diligence workflows:

Manager intelligence: Verified information on GP teams, track records, fund terms, and LP bases. Cross-reference GP claims against independent data.

Market context: Benchmark data on terms, performance, and practices by strategy and vintage. Understand whether GP terms and returns are in line with market.

LP network intelligence: Identify other allocators in the manager's LP base for reference calls. Understand who else has conducted diligence and committed.

Signal detection: Identify personnel changes, regulatory events, or market developments that affect diligence conclusions. Monitor managers during and after diligence.

Altss maintains profiles on 9,000+ family offices and institutional allocators, with verified contact information for decision-makers. For GPs preparing for diligence, Altss provides intelligence on allocator preferences, decision cycles, and commitment pacing—enabling tailored preparation for each prospect.

Master Due Diligence Checklist

This comprehensive checklist consolidates all diligence items across domains. Use it to ensure complete coverage and track diligence progress.

Pre-Diligence Screening

• [ ] Initial meeting completed
• [ ] Pitch deck reviewed
• [ ] Preliminary mandate fit confirmed
• [ ] DDQ requested and received
• [ ] Decision to proceed to full diligence documented

Investment Strategy Checklist

• [ ] Investment thesis documented and internally consistent
• [ ] Target returns specified with realistic assumptions
• [ ] Risk profile and primary return drivers identified
• [ ] Opportunity set defined (geography, sector, stage, deal size)
• [ ] Strategy evolution across funds explained
• [ ] Sourcing channels identified with historical conversion data
• [ ] Screening and filtering process documented
• [ ] Underwriting process documented with decision criteria
• [ ] IC structure defined with clear authority and accountability
• [ ] Portfolio construction guidelines (concentration, pacing, reserves)
• [ ] Value creation approach by investment type
• [ ] Exit strategy framework with historical exit analysis
• [ ] Differentiation vs. competitors articulated

Team and Organization Checklist

• [ ] Key investment professionals identified
• [ ] Backgrounds and track records verified
• [ ] Organizational chart with reporting relationships
• [ ] Decision-making authority mapped
• [ ] Track record attribution to current team documented
• [ ] Team tenure and turnover history analyzed
• [ ] Compensation structure reviewed
• [ ] Carry allocation and vesting understood
• [ ] GP commitment (amount, source, allocation)
• [ ] Key person clause terms reviewed
• [ ] Succession planning documented or discussed
• [ ] Culture and governance assessed through references
• [ ] Background checks on key personnel completed

Track Record and Performance Checklist

• [ ] Fund-level returns by vintage (IRR, TVPI, DPI, MOIC)
• [ ] Gross vs. net return analysis
• [ ] Fee drag calculation
• [ ] Benchmark comparison using appropriate peer set
• [ ] PME (public market equivalent) calculated
• [ ] Deal-level attribution with current team identification
• [ ] Return concentration analysis (dependence on top deals)
• [ ] Loss analysis (number, magnitude, causes)
• [ ] Valuation policy reviewed
• [ ] Historical mark-to-exit analysis
• [ ] Performance persistence across market cycles
• [ ] Return drivers identified (selection, timing, leverage, market)
• [ ] Audited financials reviewed

Terms and Economics Checklist

• [ ] Management fee structure (rate, base, step-down)
• [ ] Expense policy and pass-throughs
• [ ] Fee offsets for portfolio company fees
• [ ] Carried interest terms (rate, hurdle, catch-up)
• [ ] Waterfall structure (European vs. American)
• [ ] Clawback provisions (individual vs. joint and several)
• [ ] GP commitment verified
• [ ] Fund term and extension provisions
• [ ] Investment period and commitment period terms
• [ ] Recycling and reinvestment provisions
• [ ] Subscription line usage policy
• [ ] LPAC composition and authority
• [ ] Key person provisions and consequences
• [ ] Removal and no-fault provisions
• [ ] Co-investment rights and allocation policy
• [ ] Transfer and liquidity provisions
• [ ] Side letter negotiation points identified
• [ ] MFN provisions understood

Operations and Compliance Checklist

• [ ] Fund administrator identified and assessed
• [ ] Auditor identified with partner experience verified
• [ ] Legal counsel identified
• [ ] Other service providers reviewed
• [ ] Capital call and distribution processes documented
• [ ] NAV calculation methodology reviewed
• [ ] Investor reporting package reviewed
• [ ] Reporting cadence confirmed
• [ ] Compliance program structure documented
• [ ] CCO identified with adequate resources
• [ ] Regulatory registration status verified
• [ ] Regulatory examination history reviewed
• [ ] Conflicts of interest policy reviewed
• [ ] Risk management framework assessed
• [ ] Cybersecurity policies and controls evaluated
• [ ] Business continuity plan reviewed
• [ ] Disaster recovery procedures documented
• [ ] Insurance coverage verified (E&O, D&O, cyber)
• [ ] KYC/AML policies reviewed

Legal and Documentation Checklist

• [ ] LPA reviewed with counsel
• [ ] Key LPA provisions assessed (fees, conflicts, governance)
• [ ] PPM reviewed for completeness and accuracy
• [ ] Subscription agreement terms understood
• [ ] Side letter terms negotiated
• [ ] MFN election process understood
• [ ] Regulatory filings verified
• [ ] Litigation history checked
• [ ] Regulatory enforcement history checked
• [ ] Background checks completed
• [ ] Conflicts disclosure reviewed
• [ ] Related party transactions identified

Reference and Verification Checklist

• [ ] LP references (3-5 minimum)
• [ ] Portfolio company references (3-5 minimum)
• [ ] Co-investor references (2-3 minimum)
• [ ] Service provider references
• [ ] Back-channel / industry references
• [ ] On-site visit completed (if required)
• [ ] Team meetings (including junior staff)
• [ ] Document verification on-site

Final Approval Checklist

• [ ] All diligence domains covered
• [ ] Red flags documented and addressed
• [ ] IC memo drafted
• [ ] Supporting exhibits prepared
• [ ] Investment sizing determined
• [ ] Side letter terms finalized
• [ ] IC presentation scheduled
• [ ] IC approval obtained
• [ ] Subscription documents executed
• [ ] Post-commitment monitoring plan established

Post-Commitment Monitoring

Diligence doesn't end at commitment. Ongoing monitoring ensures the investment thesis remains valid and identifies issues early.

Monitoring Framework

Quarterly monitoring:

• Review quarterly reports and capital account statements
• Track performance vs. underwriting assumptions
• Monitor team changes and key person status
• Review portfolio activity (new investments, exits, impairments)
• Assess reporting quality and timeliness

Annual monitoring:

• Review audited financial statements
• Conduct annual meeting or update call
• Assess strategy execution vs. fund formation thesis
• Evaluate benchmark-relative performance
• Review compliance and regulatory status
• Assess GP-level developments (new funds, strategy expansion)

Event-driven monitoring:

• Key person events (departures, additions)
• Material LP base changes
• Regulatory or legal developments
• Market events affecting the portfolio
• Continuation vehicle or secondary opportunities

Re-Up Diligence

Re-up decisions for successor funds require updated diligence:

• Has the team remained stable?
• Has strategy execution matched the thesis?
• Have returns met expectations on appropriate benchmarks?
• Have terms remained competitive?
• Has the relationship been positive (communication, transparency, issue handling)?
• Does the next fund fit the current portfolio allocation?

Re-up should not be automatic. Each successor fund requires fresh evaluation against the original investment thesis and current alternatives.

Conclusion

Due diligence is not a checkbox exercise. It is the systematic process by which allocators develop conviction—or identify reasons not to invest.

The framework in this document provides comprehensive coverage across six domains:

1. Investment Strategy and Process: Is the strategy coherent, differentiated, and repeatable?
2. Team and Organization: Do the people have capability, stability, and alignment?
3. Track Record and Performance: Are historical results real, attributable, and predictive?
4. Terms and Economics: Do fund terms align GP and LP interests?
5. Operations and Compliance: Is the infrastructure robust and compliant?
6. Legal and Documentation: Do fund documents provide adequate LP protection?

Allocators who follow a structured framework make better decisions. Managers who prepare for structured diligence close faster.

The specific emphasis within each domain varies by allocator type:

• Institutions require comprehensive documentation, formal ODD, and extensive legal review
• Family offices may emphasize strategy depth and relationship while streamlining operational review
• Endowments often add mission alignment and ESG considerations
• Sovereign wealth funds require extended relationship-building and multi-layered approvals

Use this framework as a structure, not a straitjacket. Adapt depth and emphasis to your governance requirements, relationship with the manager, and the specific risks of the strategy.

The goal is not to complete a checklist. The goal is to develop genuine conviction—or genuine reasons to pass—before committing capital.

Related Resources

Glossary

• Operational Due Diligence
• Track Record
• TVPI (Total Value to Paid-In)
• DPI (Distributed to Paid-In)
• Net IRR vs Gross IRR
• Limited Partnership Agreement
• Limited Partner
• General Partner
• GP Economics
• Fee Offset
• Investment Mandate
• Investment Committee
• IC Memo
• Subscription Agreement
• Side Letter
• Most Favored Nation (MFN)
• Single-Family Office
• Multi-Family Office
• Family Office
• Fund of Funds
• Endowment
• Sovereign Wealth Fund
• Key Person Risk
• Ticket Size
• Commitment Pacing
• LP Decision Cycle
• Portfolio Company
• KYC/AML
• Vintage Year
• Capital Call
• Unfunded Commitment
• Soft Cap

Taxonomy

• LP Decision Cycle
• Commitment Pacing
• Principal-Led Decision Making

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