How to Read an AIF PPM Before Investing
Understanding the AIF Decision
The PPM is the central disclosure document, but it is not the only binding document. Investors should reconcile it with the contribution agreement and side letters. Begin with economics, authority and downside rather than reading the document only in order.
Reading the Structure and Economics
Read strategy limits, tenure, investment period, borrowing, valuation and conflicts.
Trace every fee, expense, distribution and waterfall provision.
Review key-person, removal, default, transfer, extension and liquidation clauses.
Where the Investor Can Get Caught
Broad strategy language can allow style drift.
Risk factors may be comprehensive yet fail to quantify the most likely loss path.
A side letter can create differentiated rights within the regulatory framework.
Making the Allocation Decision
Before acting, answer five questions in writing: mark every manager discretion; list all dates that can be extended; reconcile term sheet and ppm; send unanswered questions in writing; and have legal and tax specialists review material obligations.
The goal is not to finish the PPM; it is to understand where your economics or rights can change.
Key takeaways
- Read strategy limits, tenure, investment period, borrowing, valuation and conflicts.
- Broad strategy language can allow style drift.
- The goal is not to finish the PPM; it is to understand where your economics or rights can change.
Related questions
What should an investor verify first?
Read strategy limits, tenure, investment period, borrowing, valuation and conflicts.
How does the structure affect the investor’s outcome?
Trace every fee, expense, distribution and waterfall provision.
What is the main downside to test?
Broad strategy language can allow style drift.
How should the final decision be made?
The goal is not to finish the PPM; it is to understand where your economics or rights can change.
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