If you are fundraising for your first fund, the Institutional Limited Partners Association (ILPA) prepared a template due diligence questionnaire for you.
The ILPA Due Diligence Questionnaire (ILPA DDQ) was designed to ease the administrative burden placed on private equity LPs and GPs by standardizing the most frequent and important diligence questions posed by investors.
With increased focus on issues related to alignment of interest, governance, and transparency, the level of detail required by LPs for their fund diligence process has grown. Without question-standardization, the industry faces a proliferation of custom questionnaires, requiring GPs to provide customized answers to each. The ILPA DDQ simplifies this process, freeing up manager resources to provide more in-depth responses, as needed.
Of the many questions to answer, LPs pay the most attention to these five.
3.0 Investment Strategy
3.1. Summarize the Fund’s investment strategy and types of transactions the Fund will pursue. Include details on anticipated transaction sizes (including minimum/maximum), investment pace, holding periods, geographic focus, industry/sector focus, investment stage and other relevant characteristics).
3.2. Discuss the Firm’s ability to invest at the Fund’s targeted size. Address any significant change in fund size compared to previous funds, and the impact on co-investing with Limited Partners and non-Limited Partners.
3.3. Provide detail on the Fund’s diversification strategy in terms of number of investments, geographical concentration and sector allocations.
3.4. Describe the background and evolution of the Firm’s investment strategy, including strategies that do not apply to the Fund. Provide a timeline of this evolution, including when any additional strategic platforms were added to the Firm’s offerings. Provide examples of investments that demonstrate this evolution. Discuss how the Fund’s investment strategy compares to the previous fund. Is the Firm’s/Fund’s investment strategy expected to change in the future?
3.5. Describe the Firm’s competitive advantages and discuss how the Firm attempts to produce replicable returns.
What is your competitive advantage?
Post by Marcelino Pantoja