The questions to ask before allocating to a hedge fund, and how to keep the answers together. AlternativeSoft supports hedge fund due diligence for 150+ institutions.
A live walkthrough tailored to your asset classes, followed by a 14 day free trial.
A hedge fund due diligence checklist should cover the strategy and its edge, the track record, the team, risk management and liquidity, fund terms and fees, and operations. Each area needs specific questions and supporting evidence. AlternativeSoft brings the research and the answers together so an allocator can compare managers consistently.
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Use the same questions for every manager.
What does the manager do, why should it work, and how much capacity does it have? Ask for examples of winning and losing trades.
Check the length and consistency of returns, how they compare with peers, and how the fund behaved in falling markets.
Review the experience, tenure and incentives of the team, and what happens if a key person leaves.
Ask how risk is measured and limited, what leverage is used and how quickly positions can be sold.
Read the fee structure, lock-ups, gates, side letters and redemption terms before you commit.
Confirm the service providers, valuation process and controls. See the operational due diligence checklist for detail.
Due diligence is hard to compare when every manager answers in a different format. AlternativeSoft pairs standard questions with return-based analysis, so the numbers and the answers can be read together.
Use return and risk statistics to decide which managers deserve a full review.
Send standard questions and request the supporting documents.
Compare what the manager says with the data, and with the views of references and service providers.
Record the decision, then track the manager after investment.
| Area | Spreadsheets and separate tools | AlternativeSoft |
|---|---|---|
| Track record | Reviewed in a spreadsheet | Tested against peers with 4,000+ statistics |
| Questions | Different for each manager | A standard set for every manager |
| Style check | Taken from the manager’s own description | Tested against factor exposures |
| Documents | Scattered across emails | Kept with the manager record |
| Decision record | Rarely documented | Decision and reasons stored |
It is the process of assessing a hedge fund before and after investing. It covers the investment strategy, the track record, the team, the risks, the terms and the operations.
The time depends on the manager and the allocator. A first screen can be quick, while a full review including operational due diligence takes longer.
Examples include returns that look too smooth, high dependence on one person, weak or unusual service providers, unclear valuation of difficult assets and reluctance to share documents.
Yes. It supports return-based analysis and keeps research and notes with each manager. Operational due diligence is available through our cloud offering.
Yes. A 14 day free trial is available after a demo, with onboarding support from our team.
Join the 150+ institutions that use AlternativeSoft to select and monitor their funds. A 14 day free trial follows your demo.
Hedge fund due diligence runs on two tracks: the operational review of the manager, and the quantitative review of the fund. AlternativeSoft MCP, now available with AlternativeSoft Cloud, brings the second track into the AI assistant your analysts already use. Ask Claude, ChatGPT or Microsoft 365 Copilot for a peer ranking, a stress test or a factor breakdown in plain language and the answer is computed on your own AlternativeSoft data and the 30,000+ hedge funds in the database, not generated from memory.
“Rank this hedge fund against its equity long/short peers on Sharpe, Sortino and maximum drawdown over three years.”
What comes back: The peer group built the way an allocator builds it, the fund’s quartile on each statistic and a short read-out of where it stands out.
“How would this fund have performed in 2008, March 2020 and a 200 basis point rate shock?”
What comes back: The stress test results computed live, with the worst scenario flagged, so the due diligence file carries real scenario analysis.
“How much of this manager’s return is explained by equity beta, credit and momentum, and how much is alpha?”
What comes back: The factor exposures, the R-squared and the residual alpha, so the quantitative due diligence question of skill versus market exposure is answered in a sentence.
Yes, for the quantitative side of the review. AlternativeSoft MCP lets Claude, ChatGPT, Microsoft 365 Copilot or any MCP-ready assistant ask the AlternativeSoft engine for a manager’s return, risk, drawdown, peer rank, stress test and factor exposure in plain language, computed on your own data. It complements the DDQ and document review in the Cloud ODD platform rather than replacing them.
AlternativeSoft MCP is available with AlternativeSoft Cloud and with the desktop platform. It is read-only, runs either server-hosted for web assistants or locally for desktop tools, and requires the REST API to be enabled and an MCP licence confirmed by support. Setup usually takes under an hour.