General · Global
How to read an information memorandum
What to look for in the document that describes a private offering.
Summary
An information memorandum is the main document describing a private offering, and reading it with a checklist helps you separate facts from marketing.
- Read the risk section and the terms before the strategy and the projections.
- Check who prepared the document and who has verified it.
- Compare it with the summary or presentation you were shown.
What is an information memorandum?
It is the document a sponsor or issuer prepares to describe an offering, its terms, risks and the people involved.
It is sometimes called a private placement memorandum or offering document. It is meant to support an informed decision, but it is usually written by the sponsor, so it presents the offer in the sponsor's words.
Where should you start?
Start with the risk factors, the terms and the fees, then read the strategy and any financial projections.
Risks and terms are where the practical limits sit. Projections are estimates, not promises, and depend on assumptions you can test.
What should you check about the people and parties?
Check who the sponsor, manager, administrator, auditor and legal adviser are, and what their track record and independence are.
Look for conflicts, such as the sponsor also being the valuer or a related party lender. Ask what experience the team has with the same kind of asset.
What are common warning signs?
Vague wording on security or fees, missing accounts, aggressive claims, unusual urgency and inconsistent numbers across documents are all worth questioning.
If something is unclear, ask in writing and keep the answers. An offer that cannot be explained simply, or does not match the sales summary, deserves caution.
Frequently asked questions
Does an information memorandum mean an authority has reviewed the offer?
Not necessarily. It is prepared by the sponsor, and its existence does not by itself mean any authority has reviewed or endorsed the offer.
Should I rely on the summary?
Use the full document. A summary may leave out terms that matter.
Who should review it?
Consider your own adviser, and where relevant a lawyer or accountant.
What if the numbers do not match?
Ask for an explanation in writing before you commit.
This article is general information for eligible investors. It is not investment advice or an offer. Capital is at risk. See our Terms and Risk warning.
