Raising the Bar: Investor Due Diligence for Crypto Fund Managers

Why investor due diligence now defines your trajectory

The acceleration of institutional interest in digital assets has been accompanied by a parallel increase in scrutiny of operational, counterparty, and governance risk.  High‑profile failures in the sector have made allocators far less willing to “underwrite the manager” on brand or performance alone; they want documented processes, tested controls, and independently verifiable data.

AIMA’s Due Diligence Questionnaires (DDQs), including its digital asset–specific templates, have become reference points for what “good” looks like in terms of disclosure and process.  For crypto managers, the lesson is clear: those who anticipate and exceed these expectations will raise capital faster, command greater trust, and be better positioned to scale across strategies and vehicles.

Using AIMA and other frameworks as your blueprint

AIMA has long provided industry-standard DDQs for hedge funds and more recently has extended this to digital asset funds, covering strategy, trading, risk management, leverage, liquidity risk, and service providers such as custodians, administrators, and prime brokers.  The digital asset DDQs aim to standardise the information investors receive and help managers address the specific operational and investment risks that come with this asset class.

Beyond AIMA, other bodies offer complementary touchstones:

- ILPA DDQ 2.0 embeds detailed ESG and DEI considerations into the due diligence process, reflecting institutional investors’ focus on sustainability and governance.
- ILPA’s ESG guidance encourages investors to integrate ESG questions into operational due diligence rather than treat them as a side exercise.
- AIMA’s Guide to Sound Practices for Customer Due Diligence provides a risk-based framework for KYC, beneficial ownership, sanctions screening, and internal governance, explicitly referencing approaches for crypto assets.

Taken together, these materials give crypto managers a clear external benchmark: if your internal policies, disclosures, and operational footprint cannot stand up to these frameworks, your institutional fundraising will be constrained.

Common gaps that derail crypto managers

Digital asset managers often underestimate how comprehensive institutional DDQs have become and where their own set‑up appears incomplete.  Several recurring issues stand out:

- Governance and decision‑making: Weakly documented investment committees, unclear delegation of authority, and limited board or advisory oversight can raise red flags, especially where key person and key system risks are high.
- Custody and counterparty risk: Investors now expect managers to articulate precisely how assets are custodied, what controls govern wallet management, and how exchanges, brokers, and lending counterparties are vetted and monitored.
- Valuation and pricing: Inconsistent pricing sources, opaque valuation methodologies for thinly traded tokens, and lack of clear policies for side pockets or hard‑to‑value positions are frequently cited as weaknesses.
- AML/KYC and client onboarding: Rapid growth and global investor bases can strain AML frameworks; investors look for risk‑based CDD, robust sanctions screening, and clear processes for identifying underlying beneficial owners, including in crypto‑native structures.
- Operational resilience and technology: Limited documentation around cybersecurity, key management, disaster recovery, and system dependencies can be disqualifying given the digital nature of the asset class.

The more sophisticated LPs become, the less tolerance they have for generic or incomplete responses.  AIMA notes that its DDQs are now used not just for product selection but also for ongoing monitoring, which means that gaps will be revisited repeatedly over the life of the relationship.

Building an institutional-grade due diligence file

Managers who excel at fundraising treat the DDQ not as a compliance chore, but as a design specification for their operating model.  Four practical steps can transform your due diligence profile:

1. Anchor on recognised DDQs from day one

  Use AIMA’s digital asset DDQ and core investment manager questionnaires as a structuring tool for your policies, documentation, and data room.  Map each question to specific documents (e.g., compliance manual, valuation policy, cybersecurity plan) and ensure they are internally consistent and regularly updated.

2. Elevate custody, collateral, and trading infrastructure

  Align with AIMA’s digital asset custody guidance by documenting wallet architectures, signing policies, segregation of duties, and service provider oversight.  Detail how you monitor exchanges, OTC counterparties, and lenders, including stress scenarios, limits, and concentration thresholds.

3. Institutionalise governance, risk, and ESG

  Define clear governance structures, including committees, voting rules, and escalation paths for risk events.  Adopt elements of ILPA’s DDQ 2.0, including ESG integration and DEI disclosures, to show that your approach to risk and opportunity extends beyond price volatility.

4. Industrialise AML/KYC and investor reporting

Implement a risk‑based client due diligence framework consistent with AIMA’s Guide to Sound Practices, including beneficial ownership checks, sanctions screening, and controls for crypto‑native risks.  Combine this with timely, accurate reporting on NAV, risk metrics, and exposures that ties directly back to the data and methodologies described in your DDQ responses.

Managers who organise their internal processes around these frameworks find that subsequent DDQ cycles become faster, more consistent, and less disruptive to the investment team.

Turning due diligence into a scaling advantage

A strong due diligence posture does more than tick boxes; it compounds into a real commercial edge.  Standardised responses aligned with AIMA and ILPA templates reduce back‑and‑forth with investors, compress DDQ timelines, and reduce the risk of inconsistent answers across prospects.

Over time, this has several effects:

- Higher conversion from pipeline to allocation: investors under time pressure favour managers who can respond quickly and comprehensively using familiar DDQ structures.
- Lower operational drag: A well‑maintained due diligence file reduces ad‑hoc data pulls, frees senior staff from repetitive requests, and simplifies audits and regulatory interactions.
- Readiness to launch new vehicles: Once an institutional‑grade framework exists, extending it to additional funds, managed accounts, or products becomes far easier, enabling scale without linear growth in headcount.

For asset managers, the bar set by global best practices is rising, not falling.  Those who embrace investor due diligence as a core part of their value proposition will not only meet that bar but can leverage it to differentiate themselves as institutional partners of choice in a rapidly maturing market.

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