Private Credit Fund Due Diligence Checklist

The sponsor or manager

Is whoever recommended this being paid for it?

Referral fees and sales commissions are common — you just want to know.

Ask, or check the Form D

Have they ever lost investors' money, and what happened?

How a manager handled a loss tells you more than their wins.

Ask the sponsor

How much of their own money is invested — separate from fees they earn?

A stake funded by fees isn't the same as capital genuinely at risk.

Ask, or PPM

Are track-record returns shown net of all fees and expenses?

Gross returns can look much better than what investors actually received.

Ask, or PPM

How much of the track record has actually been paid out to investors?

Distributions are cash in hand; unrealized gains are still estimates.

Ask, or investor reports

What conflicts of interest are disclosed, and how are they handled?

Fees to affiliates, related-party deals, and how opportunities are split between funds can work against you.

PPM

Who audits the financials, and who administers the fund?

Independent, established firms make reported numbers more reliable.

Ask, or PPM

How often will you get updates, and what will they include?

Regular reports with values and cash flows let you track results — and spot problems early.

Ask, or PPM

Can you speak with investors who've invested with them more than once?

Repeat investors have seen results over time, not just the pitch.

Ask the sponsor

How are current investments performing against their original projections?

Compares what was promised with what's happening on deals still in progress.

Ask, or investor reports

Is this the team’s first fund, and has the team stayed together?

Newer managers and changing teams carry more uncertainty.

Ask, or offering documents

How much larger is this fund than their previous one?

Rapid growth can push a manager beyond the deals that built their record.

Ask, or PPM

Is there a key-person provision, and what does it trigger?

It can pause new investing if critical people leave.

Offering or governing documents

Strategy and risks

What happens when a borrower stops paying — and how have past losses turned out?

Credit returns depend as much on losses avoided as on yield earned.

Ask

Does the fund borrow to increase its yield?

Fund-level leverage raises income and risk together.

PPM

How much interest is paid in kind rather than in cash?

Payment-in-kind interest is added to the loan, not received, and can hide a borrower under strain.

Ask, or investor reports

How much is senior secured versus lower in the capital stack?

Position determines recovery when borrowers fail.

Ask, or reports

What share of loans have stopped paying (non-accrual)?

Non-accruals are the clearest early sign of credit trouble.

Ask, or investor reports

How many loans have weak lender protections (covenant-lite)?

Fewer covenants mean less chance to step in early when a borrower struggles.

Ask, or reports

Fees and terms

Management fee, carried interest, hurdle, and catch-up

Together these decide how returns are split between you and the manager.

Model these terms in the Fee & Carry Calculator →

Offering or governing documents

Is the management fee charged on committed or invested capital?

A fee on committed capital applies even to money that hasn't been called.

Offering or governing documents

Which expenses pass through to investors beyond the management fee?

Legal, organizational, and deal costs can add meaningfully to the headline fee.

Offering or governing documents

Is there a clawback if the manager receives too much carried interest early?

Without one, the manager can keep carry from early winners even if the fund falls short overall.

PPM

Does carried interest apply to interest income, or only to gains?

In credit funds, carry can apply to total returns, including income.

Offering or governing documents

Liquidity and getting your money back

What happens if you miss a capital call?

Penalties can include losing part of what you've already invested.

Offering or governing documents

Can you sell or transfer your interest before the investment ends?

Transfers usually need the manager's consent, and secondary sales are often at a discount.

Offering or governing documents

How long may capital be called, and can that period be extended?

Extensions increase how long you need to keep money available for future calls.

Offering or governing documents

How long did the manager's past funds actually take to wind down?

Funds often run past their stated term.

Ask

Can investors remove the manager, and under what conditions?

Removal rights give investors a way out if a manager fails or breaks the rules.

PPM

Are distributions paid from cash flow, or from reserves or your own capital?

Early payouts funded from reserves aren't a sign of performance.

Ask, or investor reports

Taxes

What tax form will you receive, and when?

Most private funds and deals issue K-1s, which often arrive late enough to require a filing extension.

Ask

Could you owe tax on income before you receive cash from it?

Partnership income is taxed when earned, whether or not it's distributed.

Tax preparer

How much of the return will be taxed as ordinary income?

Credit returns are mostly interest, generally taxed at ordinary rates.

Tax preparer

Check it yourself

Look up whether the offering filed a Form D

Most private offerings do. It's a notice, not SEC approval — but it names the people behind the deal and any sales commissions. If there isn't one, ask why.

SEC EDGAR

Check the manager's registration and disciplinary history

Free, and takes a couple of minutes.

SEC adviser search

Check whoever is selling or recommending it

Shows licensing and any complaints or disciplinary actions.

FINRA BrokerCheck

Search news and court records for the sponsor's name

Disputes and lawsuits won't appear in offering materials.

Web and court searches

Private credit fund due diligence checklist