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Chris Bell

Alternative Investments DDQ – Why It’s Important



When potential investors are considering your alternative investments fund, there’s often a strict vetting process that’s involved. One of the most common documents that investors request today is a due diligence questionnaire (or DDQ). At a high level, a DDQ is a highlight of the firm’s most common questions when it comes to auditing operational safeguards and securing your data.

For many hedge fund or private equity managers, the hassle and labor required to craft a DDQ seem to be wasted. Yes, it may help secure new investors, but it takes valuable time and resources away from parts of the job that matter, such as investment research, trading, or more.

More Than Just For Investors

Fortunately, having a robust DDQ does more than satisfy investors – it creates a method of securing your firm against cybersecurity threats and compliance missteps. In fact, the second most likely reason a hedge fund gets hacked is through lax cybersecurity practices of a vendor. The number one reason an alternative investment firm faces a data breach is from phishing, an easily combatable attack if employees are educated.

A DDQ helps bring a standardized approach to vetting your security status as well as your vendors. With the rapidly-changing landscape of IT and cybersecurity, keeping abreast of security threats and preventing financial fraud has become a prime concern for investors and regulators.

Vetting vendors can become an irritating, time-consuming task if a DDQ does not have effective questions. Even though it can be difficult, screening your vendors is incredibly important because it provides much-needed insight into the operational, legal, and financial integrity of all your vendors. More importantly, it also gives you the opportunity to prune sensitive data or overhaul processes you send over, thus limiting the damage of potential data breach on their end.

A well-structured DDQ will consider information that your vendor already provides. It makes no sense to request information that they’ve already sent over or made publicly available – it becomes a hassle for both parties. An effective DDQ will ask questions that return actionable answers.

For example, asking “have any of your employees committed any crimes” is a weak question. It can return a spectrum of answers and doesn’t give immediately actionable information – what if the vendor’s cafeteria worker was charged with reckless driving? Instead, a more effective question could be “have any of your employees been charged with fraud.”

Working with an IT and Cybersecurity Specialist

For many alternative investment firms, creating, managing, and executing a DDQ is a daunting task to complete with in-house talent. Fortunately, just as technology has been evolving, so too have solutions. Small or ultra-specialized alternative investment firms may find considerable value in working with a 3rd party managed IT and cybersecurity expert, such as Agio.

Agio’s deep experience with providing managed IT and cybersecurity solutions for alternative investment firms make the DDQ process easy. Agio has a proven DDQ and can help you complete the entire assessment process. With Agio, you can focus on the core of your business rather than worrying about your digital security.