Most investors skim the Information Memorandum. They glance at the target return on page two, maybe check the fee section, and call it due diligence. That’s a fairly common mistake. The IM is one of the most detailed documents a fund will give you, and it’s usually where the real story sits; not in the marketing deck, not in the one-pager with the impressive percentage in bold font.
It is important to be precise about what the IM actually is. It is not the most legally binding document; that role belongs to the trust deed, which determines the real rights of the unitholders irrespective of what the IM states. Moreover, it is not the most detailed on current holdings; that function is handled by ongoing portfolio reporting. The true value of the IM is in providing the most comprehensive narrative account of strategy, risk, and terms in one place, which is precisely why it deserves to be read carefully rather than merely skimmed.
A private credit information memorandum typically consists of fifty or more pages, dealing with all sorts of matters, such as loan structures and governance arrangements, although the length of the document is not an indication of its quality. An extensive IM, filled with general and standard risk factors, can be just as uninformative as a shorter one; simply having more pages does not necessarily indicate greater genuine disclosure.
The article explains exactly what you should look for, one section at a time, so that your assessment of the fund is based on its actual content rather than just on the headline figures or the number of pages.
What Is an Information Memorandum?
An information memorandum is a disclosure document used by fund managers to offer units in a private fund to wholesale or sophisticated investors. It sets out the fund’s strategy, structure, risks, fees, and terms, essentially everything a prospective investor needs to make an informed decision before committing capital.
It’s worth being clear on one distinction early: an IM is not the same as a Product Disclosure Statement (PDS). A PDS is used for retail offers and is subject to a more prescriptive regulatory regime under the Corporations Act.
An IM, by contrast, is used for wholesale and sophisticated investor offers, which means less standardised formatting and no mandated minimum content; there is no legislated checklist that an IM must satisfy, as a PDS must. That doesn’t mean an IM exists in a legal vacuum, though: whatever a manager chooses to state in an IM is still subject to the general law against misleading or deceptive conduct and to the manager’s ongoing obligations as an AFSL holder to act efficiently, honestly, and fairly. The absence of a prescribed template is a difference in form, not a licence to say anything. In practice, this flexible format often means more granular strategy and risk detail than a retail document provides, but because content isn’t mandated, the completeness and rigour of an IM is still very much at the manager’s discretion, which is exactly why reading it carefully, rather than assuming a baseline of disclosure, matters so much.
It’s also worth a brief note on who an IM is actually for. “Wholesale investor” and “sophisticated investor” are often used interchangeably in the market, but they’re technically distinct tests under the Corporations Act: the sophisticated investor test (net assets of at least $2.5 million, or gross income of at least $250,000 in each of the last two financial years, accountant-certified) and the broader wholesale client test, which also captures the $500,000 single-product investment pathway and professional investors. Both sets of thresholds have remained unchanged since 2001, though regulatory reform proposals have floated raising them materially. If you’re relying on one of these classifications to access a fund, it’s worth understanding which test you actually meet and how it was certified, not just accepting “wholesale” as a label.
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Why Investors Should Read the IM Carefully
There are a few reasons this document deserves more than a skim. It’s where you learn:
- What the fund’s investment strategy is, in specific terms rather than broad strokes
- What risks exist and what protections (if any) sit between you and a loss
- Whether the fund’s objectives actually line up with what you’re trying to achieve as an investor
Skipping this step and relying on a summary from a financial adviser, or worse, a marketing brochure, means you’re investing on someone else’s interpretation of the document. That’s not necessarily wrong; a good adviser adds real value, but it’s not the same as understanding it yourself, and it shouldn’t be a substitute for asking your own questions of the manager directly.
Section 1: Understanding the Fund Strategy
This is where the IM gets specific, and where investors should be asking pointed questions:
- What type of private credit does the fund actually invest in? Senior secured, mezzanine, asset-backed, specialty?
- Is the strategy built around income, growth, or some blend of both?
- What sectors and borrower types are being targeted? SMEs, property developers, mid-market corporates?
A vague answer to any of these is itself a signal worth noting.
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Section 2: Reviewing Loan Security and Asset Backing
Security is arguably the most important section in the entire document, and probably the most under-read.
- Secured vs unsecured lending: secured loans give you a claim over specific assets if things go wrong; unsecured loans don’t
- First mortgage and senior secured positions: where does the fund sit in the capital stack relative to other creditors?
- Loan-to-value ratios (LVRs): lower LVRs generally mean more buffer before a loss hits investors
- Valuation methodology: how are the loans and their underlying collateral actually valued: by an independent, qualified valuer, an internal model, or some combination of the two? How often are valuations refreshed, and what triggers a revaluation when a loan or asset comes under stress? This is one of the specific areas regulators have flagged as a weak point across the sector, and an IM that doesn’t clearly explain its valuation process is worth questioning directly.
Collateral quality matters. A first mortgage over a half-built apartment block in a soft market isn’t the same security as one over a tenanted commercial asset.
Section 3: What Is Your Actual Legal Claim on the Underlying Loans?
This question sits alongside loan security but is often overlooked entirely, and it matters just as much. Security at the loan level tells you what the fund can claim against a defaulting borrower; it doesn’t tell you what you, as a unitholder, can claim against the fund itself. Look for:
- Whether your interest is a pooled beneficial interest spread across a diversified trust holding many loans, or exposure tied to a specific loan or sub-trust
- Whether losses on one loan are shared across the broader pool, or ring-fenced to a specific loan or sub-trust
Neither structure is inherently better; pooling is the standard and often desirable way diversification works in a trust: it smooths out the impact of any single bad loan across all unitholders rather than concentrating it. Ring-fencing does the opposite, containing a loss to only the investors exposed to that specific loan while insulating everyone else. The point isn’t that one approach is a red flag, and the other isn’t; it’s that many investors assume they know which structure they hold and are wrong, and the IM (or trust deed) is where that gets settled, not assumed.
- Whether the underlying scheme is a registered managed investment scheme or an unregistered wholesale trust: this affects which governance regime actually applies (registered schemes require a compliance plan and, in most cases, a compliance committee; unregistered wholesale trusts do not)
This is a genuinely technical area, and one where independent legal advice is often warranted rather than optional.
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Section 4: Understanding Risk Management
Look for specifics here, not just reassuring language. Things worth checking:
- How credit assessments are conducted before a loan is approved
- Whether there’s genuine investment committee oversight, and how independent that committee is
- Diversification policies, concentration limits per borrower, per sector, per loan
- What happens procedurally if a loan defaults
If the IM glosses over any of these with a sentence or two, that’s worth flagging.
Section 5: Fees and Costs
Fees compound over time in ways that aren’t always obvious from a single percentage figure. The IM should clearly break down:
- Management fees
- Performance fees and the hurdle rate that triggers them
- Establishment and ongoing administration costs
Small differences in fee structures can meaningfully affect net investor returns over a multi-year hold, so this section deserves actual arithmetic, not just a glance.
Section 6: Liquidity and Redemption Terms
This is where investors get caught out later, because they didn’t read closely the first time.
- What’s the stated investment term: fixed, rolling, or evergreen?
- What withdrawal provisions exist, and under what notice period?
- Are there liquidity restrictions, gates, or discretionary suspension clauses?
Private credit is, by nature, less liquid than listed assets. Understanding exactly when and how capital can be accessed matters more here than in almost any other asset class.
Section 7: Fund Governance and Oversight
Investors tend to undervalue governance until trouble arises, at which point it is the first aspect they regret not having looked into. Since an IM is not required to meet any content regulations, the quality of governance varies from fund to fund, and it is the particular relationships that matter more than simply verifying that a position exists on paper.
- The trustee, who holds legal title to the trust’s assets. The critical question isn’t just “is there a trustee,” but whether the trustee is genuinely independent of the manager, or a related party or in-house entity within the same group, because a related-party trustee provides materially less independent oversight than an external one, even though both would appear as “a trustee” in the IM.
- Custodian arrangements, where relevant, though note that custodians are more central to funds holding cash or listed securities than to private credit trusts, where the core assets are loan receivables and mortgages typically held directly by the trustee rather than a separate custodian.
- External auditors reviewing the fund’s accounts
- Genuine independence on the investment committee, not only a name on a page
Section 8: Historical Performance and Manager Experience
Track record tells you something, but not everything. A few years of strong returns through a benign credit cycle don’t necessarily predict performance through a downturn. What’s arguably more telling is the actual experience of the management team: how long they’ve been underwriting this type of lending, and what they’ve navigated before.
Past performance, as every disclaimer reminds you, isn’t indicative of future results. It’s still worth reviewing, just not in isolation.
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Common Red Flags Investors Should Watch For
A handful of things should raise questions immediately:
- Related-party lending exposure, where the manager lends to entities connected to itself, or a related-party trustee providing less independent oversight than it appears to
- Lack of independent oversight on lending decisions
- Aggressive return targets with no clear explanation of how they’re achieved
- High concentration in a single borrower, sector, or geography
- Limited transparency around the current loan book or reporting cadence
- Vague or absent explanation of how loans and collateral are valued
- A long IM that’s heavy on generic risk-factor boilerplate but light on fund-specific detail
None of these automatically disqualifies a fund, but they each deserve a direct question to the manager before you invest.
Investor Due Diligence Checklist
Before committing capital, it’s worth working through:
- What questions need direct answers from the manager (security, legal claim structure, valuation methodology, governance, fee structure)
- What documents to request beyond the IM itself: audited financials, loan portfolio reports, and the trust deed
- Whether independent financial or legal advice makes sense, given the complexity of the offer, and this is worth deciding early, not as an afterthought once you’ve already formed a view from the IM alone
Conclusion
An investment memorandum is not just a compliance document placed between you and the application form; it is generally the most thorough insight into how the fund actually works, even though it is the trust deed that finally determines your rights and since it is not based on a prescribed template, the quality of it can tell you something about the manager before you’ve looked at a single figure. Understanding the details about security, your actual legal claim on the underlying assets, valuation methodology, governance independence, fee structure, and liquidity terms can genuinely help investors avoid risks that a glossy summary would never mention.
Yield is the easy number to focus on. The structure underneath it is what actually determines whether that yield holds up.
Want to learn more?
Rixon Capital is committed to transparency, with detailed reporting and full disclosure built into every fund structure we offer. If you’re reviewing private credit opportunities and want to understand the details behind the numbers, our team is happy to walk you through our current Information Memorandums. Visit rixon.capital to get started.
