Due Diligence on an AIF Is Different From Diligencing a Stock
When you buy a listed stock, historical price and public disclosures do most of the diligence work for you. Committing capital to an AIF is closer to entering a long-term partnership — your money is locked up for years, and you're betting on the manager's judgment across dozens of future decisions you won't see in advance. That calls for a different, deeper diligence framework.
Track Record and Team
- Prior fund performance, ideally across a full fund cycle (not just early, unrealised marks)
- Team continuity — has the core investment team stayed together across funds, or is this a newly assembled group?
- Sector/stage expertise genuinely matched to the new fund's stated strategy
Fund Structure and Terms
- Category (I/II/III) and what that implies for leverage, taxation, and strategy
- Fee structure — basis (committed vs invested capital), rate, and any step-downs (see our article on management fee calculation)
- Carry structure — hurdle rate, catch-up, deal-by-deal vs whole-fund waterfall (see our carried interest and distribution waterfall articles)
- Fund tenure and extension provisions
Governance
- Trustee arrangement — professional/corporate trustee vs individual, and how actively it exercises oversight
- Investment committee composition and decision-making process
- Conflict-of-interest policies, particularly around related-party transactions and co-investment allocation
Operational Discipline
- Timeliness and quality of past investor reporting and audited financials
- SEBI compliance track record — any regulatory observations or penalties
- Quality of the PPM itself — is closing/waterfall/fee language precise, or vague and inconsistent?
Alignment of Interest
- Sponsor/manager commitment ("skin in the game") — how much of their own capital is invested alongside LPs
- Whether carry is structured to reward genuine long-term performance, or is easily front-loaded via deal-by-deal payouts without adequate clawback protection
Questions Worth Asking Directly
- How are subsequent-closing investors treated relative to earlier investors (catch-up and equalisation mechanics)?
- What's the actual valuation methodology for unlisted holdings, and how often is it refreshed?
- Can the manager walk through a real example of how a past exit flowed through the distribution waterfall?
Independent Financial Review Before You Commit
We support investors — particularly family offices and institutions — with independent review of fund PPMs, financial models, and manager track records before capital commitment decisions.
This article is for general informational purposes and does not constitute investment advice. Please conduct comprehensive due diligence, including legal review, before committing capital to any fund.