Private placement memorandum
The disclosure document given to prospective investors in a private fund.
It describes the strategy, risks, fees, conflicts, team and terms in detail. It is the main legal disclosure, prepared with the fund's lawyers, and investors sign a subscription agreement that refers to it.
A PPM includes a summary of terms, the investment strategy, the team's biographies, conflicts of interest, risk factors, tax considerations, legal and regulatory disclosures and how to subscribe. It is supplemented by the LPA and the subscription documents.
The PPM protects the manager as much as investors, because full risk disclosure is a defence against later claims. That is also why the deck, DDQ answers and data room must match it: a contradiction can create liability.
Worked example
A $100M buyout fund's PPM runs to 70 pages and includes a 15 page risk factor section covering leverage, concentration, key person risk and valuation uncertainty. When the GP updates its pipeline slide during the raise, its lawyers check that nothing in the deck contradicts the PPM.
Common questions about PPM
Does every private fund need a PPM?
Not legally in every case, but almost every fund raising from institutions or many individuals prepares one. It is the main disclosure document and a key defence against misrepresentation claims.
What is the difference between a PPM and an LPA?
The PPM is a disclosure document describing the fund and its risks. The LPA is the binding contract that governs the fund. Investors sign the LPA, usually through the subscription agreement, not the PPM.