Portfolio Construction

Due diligence in a digital asset fund of funds

In a fund of funds, due diligence is not a preliminary box to tick — it is the core discipline that determines the quality of the portfolio. This note explains how rigorous investment and operational due diligence works in digital assets, why continuous monitoring matters, and how Block Asset Management applies that discipline on behalf of professional investors.

2 July 202610 min read

Key takeaways

In a fund of funds, due diligence is the product: the value delivered is disciplined manager selection and ongoing oversight, not market exposure alone.
Rigorous due diligence spans two dimensions — investment (is the manager's edge genuine and repeatable?) and operational (are assets safeguarded and controls sound?).
In digital assets, operational due diligence carries unusual weight: custody, counterparty exposure and infrastructure resilience are where much of the real risk sits.
Due diligence is continuous, not a one-time gate — managers, markets and operational conditions change, and monitoring must keep pace.
Accessing digital assets through a diligenced fund of funds gives professional investors institutional selection, diversification and oversight that are difficult to replicate individually.

Due diligence is the product

A fund of funds does not simply provide exposure to a market — it provides a portfolio of carefully selected managers and the discipline that stands behind that selection. In digital assets, where the quality gap between managers is wide and the operational hazards are real, that discipline is the difference between a governed allocation and an act of faith.

The value delivered, therefore, is due diligence itself: the structured assessment that decides which managers earn an allocation, how much, and on what terms — and the ongoing scrutiny that decides whether they keep it. Everything else, from diversification to reporting, rests on that foundation. At Block Asset Management, this is the core of what we do.

Investment due diligence: is the edge real?

Investment due diligence asks whether a manager's approach is sound, repeatable and appropriately risk-managed — not whether it has produced attractive numbers in a favourable period. In a young, fast-moving asset class, distinguishing genuine skill from a benign market is essential, and the assessment focuses on process rather than promise.

Strategy rationale — a clear, coherent explanation of where returns are expected to come from and why that source should persist, rather than a description of past outcomes.
Investment process — how ideas are researched, sized, executed and exited, and how disciplined and repeatable that process is across market conditions.
Risk discipline — the limits, controls and drawdown management that govern the strategy, and evidence they are applied in practice, not only on paper.
Team and alignment — the experience and stability of the team, the robustness of key-person arrangements, and whether the manager's incentives are aligned with investors.
Capacity and liquidity — whether the strategy can operate at its asset level without dilution, and whether its liquidity profile matches the terms offered to investors.

Operational due diligence: is it safe and sound?

This is where digital assets differ most from traditional markets, and where a fund of funds earns much of its keep. A compelling strategy is worthless if assets are not properly safeguarded or if operational controls are weak. Operational due diligence examines the infrastructure around the investment — and in digital assets, a great deal of the genuine risk lives here.

Custody and key management — how assets are held, whether qualified or institutional custody is used, and how private keys are secured, segregated and controlled.
Counterparty and exchange exposure — the venues, brokers and counterparties a manager relies on, and the concentration and settlement risk that exposure creates.
Independent administration, valuation and audit — the presence of a credible fund administrator, independent pricing and valuation policies, and a recognised auditor.
Controls and governance — segregation of duties, cash and trade controls, and the governance framework that oversees the manager's operations.
Infrastructure and cyber resilience — the security, redundancy and resilience of the technology stack against operational failure and cyber threats.
Regulatory standing and service providers — the manager's regulatory posture and the quality of its legal, banking and technology partners.

Monitoring: due diligence never stops

Selection is the beginning, not the end. Managers evolve, markets shift and operational arrangements change — so due diligence is best understood as a continuous discipline of re-underwriting rather than a one-time gate at the point of allocation.

Ongoing monitoring tests whether a manager is still behaving as expected: whether performance is consistent with the stated strategy, whether risk remains within agreed bounds, whether style drift has crept in, and whether any operational, personnel or regulatory change alters the original thesis. Where the evidence warrants it, allocations are reduced, paused or redeemed.

Performance reviewed against the strategy's stated objectives and risk profile, not in isolation.
Continuous assessment of aggregate portfolio risk, concentration and liquidity.
Prompt review of material changes — team, terms, service providers, regulation or operations.
A willingness to act on findings, including reducing or exiting an allocation.

The advantages of a diligenced fund of funds

For most professional investors, replicating this depth of due diligence in-house is impractical. Building the specialist expertise, manager access and operational scrutiny required — and sustaining it as the market evolves — is a significant undertaking. A diligenced fund of funds is designed to deliver those benefits within a single, governed allocation.

Access to specialist managers — including opportunities that are difficult for an individual investor to reach or evaluate alone.
Diversification that reduces single-manager risk — exposure is spread across managers, strategies and distinct return drivers rather than concentrated in one approach.
Professional operational oversight — the operational and custody scrutiny that is hardest to run independently is handled by a specialist team.
One governed relationship — a single point of access, reporting and oversight in place of many separate manager relationships.
Dynamic, disciplined allocation — capital can be reallocated as conviction and conditions change, within defined risk limits.
Alignment of the due diligence burden — the demanding, ongoing work of selection and monitoring sits with a team built to do it.

Block Asset Management

How Block Asset Management helps

Due diligence is the discipline at the centre of our fund of funds strategies. Since 2017 we have built and refined a structured process for identifying, assessing and monitoring digital asset managers — applying the same governance and rigour professional investors expect from any institutional manager.

A structured, repeatable process

Every underlying manager is assessed through a defined, consistent due diligence process before any allocation is made, so decisions rest on evidence and comparison rather than conviction alone.

Investment and operational scrutiny

We assess both dimensions in depth — the soundness and repeatability of the investment approach, and the robustness of custody, controls, administration and operational infrastructure.

Custody and operational risk in focus

We treat custody arrangements, counterparty exposure and operational resilience as first-order questions, reflecting where much of the genuine risk in digital assets actually sits.

Continuous monitoring and re-underwriting

Manager performance, risk and operational factors are monitored continuously, and allocations are reviewed and adjusted as conditions and conviction evolve.

Diversified, risk-managed construction

Allocations are sized with reference to correlation, liquidity and concentration limits, building diversified exposure rather than reliance on any single manager or strategy.

Experience and transparency

Eight years focused on digital assets across multiple market cycles inform how we select and oversee managers, with the transparency and controlled, auditable access institutions expect.

In digital assets, the manager you choose — and the scrutiny you apply before and after choosing — matters as much as the decision to allocate at all. Rigorous, continuous due diligence is what turns a promising but hazardous market into a governed, diversified allocation.

If your organisation is evaluating access to digital asset managers, our investor relations team can discuss our fund of funds strategies and our due diligence approach. Professional and qualified investors can also register for access to our detailed strategy materials.

Important information

This material is provided for information purposes only and is intended for professional and qualified investors. It does not constitute investment advice, an offer or a solicitation to buy or sell any financial instrument, nor a recommendation of any strategy. Digital assets are volatile and involve significant risk, including the possible loss of the entire amount invested. Due diligence reduces but cannot eliminate risk. Past performance is not a reliable indicator of future results. Nothing in this note should be relied upon as a promise or representation as to future performance.

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