For years now, Ontra’s customers have been telling us their daily frustrations with due diligence questionnaires. Whether it’s fundraising DDQs or ESQ and operational requests throughout the year, investor relations teams and their colleagues are carrying the weight of a growing volume of requests. Some managers have told us they handle up to 30 requests per week during a flagship fundraise.
Most IR teams are still in the trenches, dealing with manual processes and inconsistent workflows. Along with their legal, compliance, and finance colleagues, they’re spending hours searching for answers and formatting responses in line with LP requirements. It’s frustrating and not the best use of anyone’s time.
Given the significant advancements in AI and private markets technology, fund managers can move away from traditional DDQ workflows. Learn about streamlining the DDQ process with Ontra’s AI-powered software solution that helps firms answer, track, and submit investor requests with confidence and speed.
What is a DDQ?
A DDQ is a questionnaire LPs use to gather material information to assess investment risk. It’s an important step in the evaluation phase of any transaction and helps LPs determine a fund manager’s financial standing, operational standards, data and cybersecurity measures, regulatory compliance, and more.
LPs use the due diligence process to:
- Identify and assess potential risks associated with a particular fund or investment.
- Confirm the fund manager’s compliance with legal and regulatory requirements.
- Determine if the fund is strategically aligned with the investor’s goals.
- Make an informed decision about whether to invest with a particular fund manager and fund.
Potential investors in a fund expect an efficient DDQ process, complete answers, and transparency into risk. If one of these elements is missing, they’ll likely form a negative opinion about the firm’s operational capabilities.
Due diligence questionnaires aren’t a one-sided opportunity. Experienced fund managers use DDQs to:
- Educate investors on the firm’s value proposition.
- Build trust and establish long-term relationships.
- Accelerate fundraising.
- Bolster the firm’s reputation.
Additionally, private equity fund due diligence questionnaires give GPs an opportunity to demonstrate their use of advanced technology. A streamlined, efficient DDQ process could give a GP a competitive edge during fundraising and foster long-term investor relationships when handling operational and ESG DDQs throughout the years.
Time-consuming DDQ processes burden IR teams
It’s critical that GPs return due diligence questionnaires to investors in a timely manner and with complete, accurate answers. Unfortunately, that’s a challenge at most firms.
DDQs can take up an excessive amount of time. These questionnaires are persistent throughout the fund lifecycle — not only during initial fundraising periods. Month after month, IR teams and other internal stakeholders are responsible for answering DDQ questions, which tend to be incredibly repetitive from one LP to the next.
Teams of all sizes are continuously pulled away from more strategic opportunities and are slow to complete and return DDQs. It’s a persistent challenge.
Why do investor DDQs take up so much time?
It’s rare for fund managers to have a centralized repository of DDQ questions and answers. Some firms prepare as much as they can by preemptively answering the questions in template DDQs, such as the ILPA DDQ 2.0 or AIMA DDQ Decision Tree. Unfortunately, every investor request requires the IR team and others to confirm accurate, up-to-date answers for each question.
The traditional DDQ process
Step 1: The firm receives a DDQ from an investor, and IR saves it on a local or shared drive.
Step 2: IR begins reviewing the DDQ questions and looking for similar precedent questions and answers. This is a manual process. It’s difficult to find answers to the same or similar questions across different documents.
Step 3: IR takes a stab at answering each question. Again, this is a manual process that ranges from copy & pasting to drafting a new answer from scratch using firm-approved language and format.
Step 4: IR must confirm that each answer is accurate and complete, which typically requires connecting with multiple stakeholders across teams.
Step 5: After multiple rounds of back-and-forth communication, the IR team may still need to go through another approval step. In some cases, legal has to confirm the completion and accuracy of the DDQ response.
How to improve the DDQ process for private funds
Fund managers typically handle dozens (or more) DDQs at any given time. It’s a strenuous, cross-functional process. Unfortunately, inconsistent due diligence questions and formats strain business investor relations, legal, compliance, and tax teams.
Despite the challenges, GPs can improve their fundraising, ESG, and operational DDQ workflows by:
- Adopting an AI-powered software solution.
- Creating and updating a precedent library as a single source of truth.
- Building an answer bank based on common questions, such as the ILPA template.
- Capturing and tagging responses to unique questions for future use.
- Establishing clear task ownership, review processes, and escalation protocols.
The right DDQ solution is purpose-built for PE
Once fund managers accept that their manual DDQ workflows are no longer working, they face the question of which solution to adopt.
Firms frequently evaluate generic RFP software and horizontal AI tools as DDQ solutions, but these tools aren’t built for the job. They don’t account for the context in which private markets investors ask questions — context that matters enormously when a question like “describe your risk management process” should be answered differently depending on the LP, fund strategy, and current regulatory environment.
Generic and horizontal tools also don’t operationalize the end-to-end workflows fund managers actually run: assigning questions to domain experts, routing completed DDQs through legal and compliance review, and exporting in each LP’s required format.
Firms using generic or horizontal tools often revert to manual methods to fill the gap, failing to solve their problem.
Improve your due diligence questionnaire process with Ontra
Ontra’s DDQ is an AI-powered software solution designed to help fund managers answer, track, and submit investor requests with confidence and speed.
With DDQ, fund managers digitize materials to create a precedent library and answer bank. When a new investor request arrives, DDQ automatically extracts the requests to create a digital list of questions. AI takes a first pass at suggesting or drafting answers before various stakeholders are looped in for review. These features provide a single source of truth to improve coordination, standardize answers, and accelerate approvals.
