Nine QOF offering documents, one checklist, two funds left standing

I've had a $145k gain sitting from a business sale since the spring and no strong opinion about where it should go. I ended up building a one page checklist and running every fund deck and private placement memorandum I could get through it. Nine funds. Two survived. I wired into one of them in August and the first reporting package showed up last month, so I'm calling this finished enough to write about.

For anyone new, a private placement memorandum, PPM, is the long disclosure document a fund gives you before you invest. It's where the risks and the fees actually live, as opposed to the deck, which is where the pictures live.

The checklist, in the order I asked:

What are the assets today, not the target. Three funds couldn't name a single closed property. One of those had a glossy rendering on page two.
Who bears the cost of the fund's compliance and reporting. New reporting requirements came with the 2025 law and somebody pays for them. Two funds pushed it entirely to investors as an expense with no cap.
Fees on committed capital or on invested capital. Two funds charged an annual fee on committed capital from the day of subscription, so I'd be paying on money sitting in a bank account.
What happens on a capital call I decline.
Closing calendar versus my own deadline.
Sponsor money in the deal, in dollars, not percent.

The two survivors were both multi-asset. I picked the one where the sponsor had $2.1m of their own cash in, against a $46m fund, and where the reporting cost was capped at 15 basis points a year.

What nearly broke it: I almost skipped step three because the fee table looked normal. The difference between fees on committed and fees on invested was about $9,700 over the first two years on my number. That's not fatal, it's just money I'd have handed over for nothing.

I don't know yet if the projects work. That's a 2030 conversation. What I know is I understand what I bought.

11 replies

2chriswalton8CC1CPRO8

How did you get nine PPMs? Every sponsor I've contacted wants an accreditation conversation and a call before they'll send anything, and after the call they follow up for a month.

3stephen_ok9CO2CPRO6

@sable four came from people in this room and adjacent forums who'd already invested and were willing to forward. Three came from sponsors after the call, and yes, the follow-ups are relentless. Two I got from a placement agent who was pitching me on something else entirely and threw in comparables to look credible.

The forwarded ones were the most useful, because the investor sending it usually attaches a sentence about what annoyed them.

1derekj19SB1B

The placement agent handing you competitor documents to look credible is such a specific detail. That's the whole service side in one sentence.

1aaron_fitz10 Get yoursPRO6

Item 6, sponsor money in dollars rather than percent. Why does the dollar figure change the read for you?

2aliyah_bAU2APRO6

@kestrel not meridian, but a sponsor saying "we're 5% of the fund" can mean deferred fees credited as equity rather than cash they wired. The dollar number forces the question of whether it's actual money.

1tonyv88SO4CPRO6

The 15 basis point cap on reporting cost is the item I'd steal. On the fund-owned building I manage, the compliance and reporting work has gone up noticeably since the new requirements came in, and none of that cost was in anybody's original budget.

1jessreyes12AU1APRO8

Basic question I'd be embarrassed to ask elsewhere. When you say you wired into the fund, does the fund then own the buildings, and you own a slice of the fund? Or do you own a slice of each building?

3tashaford30PB2APRO7

@compass you own an interest in the fund. The fund owns the projects, usually through separate subsidiary entities under it. So your recourse is against the fund and your information rights are whatever the operating agreement gives you, which is often less than you'd expect.

1kevin_lombardPG1BPRO5

Item 4 is the one that got me on a different deal. Read the dilution formula, not the sentence describing the dilution formula. They aren't always the same document.

Good list, meridian. I'd have been better off with it three years ago.

-1mikeoconnell7SP2APRO6

Three of nine couldn't name a closed asset and they were still out raising. That ratio is worse than I expected.

1sonia_alvarez Get yoursPRO6

What did the two survivors look like on debt? A $46m fund with modest gain-driven equity can still be sitting behind construction loans that reprice, and the investor sees none of that until a project needs a capital call. Curious whether your checklist had a line for it, because I'd add one.

Nine QOF offering documents, one checklist, two funds left standing

11 replies