#28 PRIVATE EQUITY Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

1. Private equity is not the same as buying a publicly traded stock.
2. Your capital may be locked up for years.
3. The advertised return is not necessarily your net return.
4. Management fees reduce returns.
5. Performance fees/carry can materially affect economics.
6. Fund expenses can be complex.
7. Valuations may not be continuously observable.
8. The manager’s track record requires verification.
9. Past fund performance does not guarantee future performance.
10. Deal-level success does not guarantee fund-level success.
11. Concentration risk can be substantial.
12. Leverage can magnify losses.
13. Portfolio-company debt matters.
14. Exit assumptions can determine reported returns.
15. A fund may require additional capital contributions depending on structure.
16. Capital calls can create liquidity problems.
17. Conflicts of interest can exist.
18. Related-party transactions require scrutiny.
19. Fee structures can be difficult to understand.
20. Distribution timing can be unpredictable.
21. Tax consequences can be complicated.
22. The legal structure controls your rights.
23. You may have limited control over investment decisions.
24. Secondary liquidity may be limited.
25. The first question should be “What exactly am I buying?”, not “What return are you promising?”

B. PREMIUM BUYER CHECKLIST

FUND/DEAL IDENTITY

☐ Fund/entity identified
☐ Manager identified
☐ Strategy documented
☐ Target investment period
☐ Target holding period
☐ Geographic focus
☐ Sector focus
☐ Investment concentration limits

MANAGER DUE DILIGENCE

☐ Track record independently verified
☐ Prior funds reviewed
☐ Failed investments examined
☐ Team backgrounds verified
☐ Regulatory/background information reviewed where appropriate
☐ References obtained

ECONOMICS

☐ Management fee
☐ Performance fee/carry
☐ Fund expenses
☐ Transaction fees
☐ Administrative fees
☐ Capital-call mechanics
☐ Distribution mechanics
☐ Net-return calculation

LEGAL RIGHTS

☐ Offering documents reviewed
☐ Partnership/agreement documents reviewed
☐ Redemption/transfer restrictions
☐ Voting rights
☐ Reporting rights
☐ Key-person provisions
☐ Conflict provisions
☐ Removal provisions
☐ Default provisions

RISK

☐ Leverage
☐ Concentration
☐ Illiquidity
☐ Valuation risk
☐ Exit risk
☐ Manager risk
☐ Economic-cycle risk

FINAL TEST

Can I explain exactly how my money can be lost, locked up, diluted, or reduced by fees?

If not, stop.