During private debt fund due diligence, it is important to review several key documents to gain a comprehensive understanding of the fund’s operations and potential risks. Here are the key documents to consider:
1. Financial Statements: Reviewing the fund’s financial statements, including balance sheets, income statements, and cash flow statements, provides insights into its financial health, performance, and liquidity [2].
2. Legal Documentation: Thoroughly reviewing corporate documents, such as articles of incorporation, bylaws, and partnership agreements, helps assess the fund’s legal structure, governance, and compliance [2].
3. Creditworthiness: Evaluating the creditworthiness of potential borrowers is crucial. This involves analyzing their financial statements, credit history, and ability to repay the loan [2].
4. Corporate Documents and Legal Litigations: Conducting a comprehensive review of corporate documents and any past or ongoing legal litigations helps identify potential legal risks and liabilities [2].
5. Environmental, Social, and Governance (ESG) Policies: Considering ESG factors is increasingly important in private debt due diligence. Reviewing the fund manager’s responsible investment policies and in-house sustainability resources can provide insights into their commitment to ESG considerations [3].
6. Responsible Investment Questionnaires: Some organizations, such as the Principles for Responsible Investment (PRI), have developed due diligence questionnaires specifically for private debt investors. These questionnaires cover various aspects of responsible investment and can help evaluate the fund manager’s approach [5].
It is important to note that this is not an exhaustive list, and additional documents may be relevant depending on the specific circumstances and requirements of the due diligence process.
Citations:
[1] https://caia.org/sites/default/files/7_private_debt_2-26-18.pdf
[2] https://www.fuse-capital.com/en/blog/due-diligence-in-private-debt
[3] https://www.newprivatemarkets.com/in-brief-pri-releases-private-debt-esg-due-diligence-template-for-lps/
[4] https://www.affinity.co/guides/due-diligence-checklist-for-private-equity-firms
[5] https://www.unpri.org/private-debt/responsible-investment-ddq-for-private-debt-investors/4071.article
[6] https://4degrees.ai/blog/private-equity/a-guide-to-conducting-private-equity-due-diligence/