The Private Placement Memorandum (PPM) remains a core document in most alternative assets fundraisings. It is usually considered a 'reliance document', contains required risk factors and disclaimers, and will normally form part of the pack of 'legal docs' for a closing. Beyond this, LPs still find a PPM useful when putting together their own investment papers. Finally, many if not most LPs will insist upon a PPM as part of their DD checklist and there remains those that will not start a DD process until they have received one (although this is relatively rare, nowadays).
So, the PPM is a required document. But there is no requirement that it be dry, boring, and dominated by legalese! Wouldn't it better if your PPM were an engaging document that effectively assisted LPs in their due diligence?
"Easy said than done", you may reply. Well, here are a few tips that we hope will help you take your PPM to the next level..
A. Focus on what you are
GPs can be guilty of taking their cues from what they think LPs are looking for. Consequently, they can fall into the trap of trying to be all things to all people. Avoid this. Rather, make sure the PPM tells the story of your fund, not any fund. Otherwise, you risk losing the chance to make any kind of lasting impression.
B. Avoid cliché
Private equity comes with its own lexicon. Phrases such as "top-quartile" or "proprietary deal flow" litter fund marketing material. Such terms can sometimes be a useful shorthand, for sure. But so many GPs use the same phrases, trying to 'differentiate' themselves, that they rather ironically all end up sounding the same!
Avoid cliché whenever you can. Rather than trumpeting your "proprietary deal flow, provide concrete examples of how your network has helped you source deals outside of competitive processes. Most case studies include information on the reason the manager invested, but few cover how the opportunity came to them, in the first place.
This brings us to our next tip ....
C. Show, don't tell
Too many times we see PPMs that merely make assertions as to why that the associated fund is attractive. Such assertions may be extremely well-crafted. But they are still just assertions.
You need to feature the evidence to back up these claims prominently. Carefully considered and crafted case studies are a key method by which you can do this. They are your opportunity to bring everything to life and your PPM should include a handful in a separate section. The case studies you include should be representative of your portfolio, illustrative of your key attributes, persuasive and, taken as a whole, comprehensive. The exact number to include will depend somewhat on the size of your existing portfolio, but four to eight is a good number.
And don't just pick your biggest winners, tempting as that might be.
D. Use charts and graphics
Many PPMs consist of dense text and little else. They are dry and boring documents and they don't have to be. Prospective LPs are more likely to engage with your PPM if you make it visually arresting and interesting. Judicious use of images, graphics, icons, charts and tables can really help to illustrate the narrative you are telling.
E. Structure
Your PPM needs to have a clear and logical structure that makes it easy for the reader to find the information he or she is looking for. A contents page is a must, obviously, but consider including a glossary or definitions section as well.
'Signposting' through use of headings and sub-headings, font styles and sizes (not forgetting colour), will help prospective LPs navigate the PPM and improve its readability. Furthermore, by making it clear what is a section heading vs. a sub-heading, you assist the reader in understanding which concepts are linked, which expand upon an earlier concept, and so on.
We can't promise that by following these tips you will get your fund raised But, by doing so, you will have a better chance of getting LPs to engage with your PPM and, hence, your story.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
