Yeah, looks like an interview at a fund-of-hedge-funds, so the due diligence guy is supposed to evaluate funds much like an analyst might recommend stocks, though obviously one needs different kinds of information on which to base a recommendation.
From what I've read, hedge funds make their money on having (or believing they have) better pricing and risk models than their competitiors, and these better models allow them to achieve gains that competitors would avoid as too risky, i.e. their models effectively improve their sharpe ratios and allow them to use leverage more confidently. This all assumes that the models are properly specified, which of course is often difficult to know even if you have full access to the models.
However, since the hedge fund models are the source of their comparative advantage, many hedge funds will not fully disclose their model, for understandable reasons. At the same time, those that are still open may need to attract investors and therefore need to say something about their models. So being a fund of hedge funds manager probably has a lot to do with reading between the lines - getting a general sense of what the model or strategy is, having enough sense about whether this is an appropriate strategy in the first place, and then making sure that the managers have a good grip on what risks they face and to see if there are systems in place to monitor and control that risk. That means that a FoF manager needs to know what the risks are in a given strategy, because it's unreasonable to expect the fund manager to be fully forthcoming about all the risks they face, unless the due diligence guy knows what to ask. And of course it helps to have good feelers as to whether someone is lying to you or saying something they either don't believe or don't fully understand.
As I understand it, the point of fund-of-funds is to get access to the attractive absolute returns of hedge funds while diversifying the risk of any one fund blowing up. You could try to diversify within a single strategy, which would help protect against incompetant or crooked fund managers, but not protect you against some kind of regime shift where that style of hedge fund strategy stops working. If you were to do this, you'd need to know that strategy very well, since you'll probably need at least 20 funds to achieve adequate diversification, and that could constrain your universe of trustable funds within a style category.
The other strategy is to diversify among strategies, which would help protect you against changes in the economic environment that penalize specific hedge fund styles. To me, that sounds more interesting because it would allow you to incorporate views into the future and allow you to engage in tactical style allocation. Of course, if you don't trust your knowledge of the future or your understanding of the risks of different styles, maybe that's not as attractive. I'm not saying I'm perfect at predicting the future and know all the pros and cons of different styles, but it does sound like a fun set of things to be thinking about.
Anyway, hope that adds some thoughts to your situation.