Question 1

What documents should I review before investing in alternative investments?

Accepted Answer

Review the offering documents (typically a private placement memorandum or prospectus), along with the subscription agreement, partnership or operating agreement, available audited financial statements, and fee disclosures. Focus on investment risks, manager experience, conflicts of interest, leverage, tax implications, capital commitments, distribution policies, and restrictions on withdrawals or resale.

Question 2

What is a private placement?

Accepted Answer

A private placement is a sale of securities directly to selected investors rather than through a public offering. Most rely on SEC Regulation D, which exempts them from full registration and generally limits sales to accredited investors. Private placements can offer access to private companies, funds and real estate, but they come with less public disclosure and resale restrictions.

Question 3

What is in a private placement memorandum?

Accepted Answer

A private placement memorandum, or PPM, describes the investment in detail. It typically covers the strategy, the manager's background, fees and expenses, risk factors, conflicts of interest, how and when investors may withdraw, how the investment is valued and how it is taxed. It is a disclosure document, not a sales brochure, and the risk factors section deserves the closest reading.

Question 4

What is a subscription agreement?

Accepted Answer

The subscription agreement is the contract an investor signs to buy into a private offering. It records the amount invested, confirms the investor's eligibility, such as accredited investor status, and states that the investor has read the offering documents and understands the risks. Signing it usually binds you to the terms in the partnership or operating agreement.

What documents should I review before investing in alternative investments?