LPs Are Using Scoring Engines for Five Day Due Diligence Turnarounds
The time that LPs grant general partners to respond to due diligence questionnaires is getting vastly shorter, down from 14 days two years ago to just five today.
Covered by alternative assets data platform Altss’ survey into 1,200 institutional investors’ DDQ habits, 63% would automatically reject a GP if responses fell outside of that five day grace period. The same number also uses a DDQ algorithm to evaluate and score responses against pre-defined criteria without a human eye ever seeing a file.
These rising facts point to concerns over operational concerns, particularly this past year, with nearly 90% of LPs saying they stopped their pursuit of a GP (despite instances of investment due diligence being strong) for this reason. The average full due diligence process takes up to 14 weeks; that’s 6 weeks longer than the figure found in 2024.
Whatsmore, this is all happening at the same time that standardised DDQs are morphing into more unwieldy beasts: up to 23 sections and over 280 questions built around the standard Institutional Limited Partners Association (ILPA) DDQ 2.0 framework.
The risk of disqualification lives on a narrower knife edge, where the costs of being unprepared for LPs’ DDQ turnaround expectations are rising for fund marketers and IRs.
But just as change happens at the DDQ stage, so too will IR teams have to evolve into more than a post-pitch relationship liaison, and instead become valuable operational proof points to get a fund past automated screening, in a far quicker time frame, through the following means:
Adopting a maintainable document for DDQ answers, valuation policy language, service provider details and cybersecurity means, ready for whenever an LP request comes in.
Understanding that a fund’s boilerplate answers are likely being scored by an engine focused on quantifiable evidence around claims for sourcing, fee structure and risk controls (and not so much woolly language, i.e. “differentiated approach”, “wealth of experience” and so on.)
Poor operational resilience is a no-go, even a deal-killer. Instead, IR firms committed to DDQ-readiness could prove as greatly influential as investment strategies or track record credentials that once held most of the sway for allocation decisions.
