Due Diligence Checklist for Wholesale Investors: What to Ask Before Investing

Thorough due diligence is essential before committing capital to any wholesale investment. This practical guide provides a comprehensive checklist covering private credit, private equity, venture capital, and property investments in New Zealand.

Why Due Diligence Matters More for Wholesale Investors

As a wholesale investor, you receive fewer regulatory protections than retail investors. This means:

• No mandatory Product Disclosure Statement (PDS)
• Reduced disclosure requirements for fund managers
• Limited access to dispute resolution schemes
• Greater personal responsibility for investment decisions

The trade-off is access to potentially higher-returning investments—but the responsibility for due diligence falls squarely on you.

Part 1: Manager/Sponsor Due Diligence

Regulatory Status

• ☐ Verify FSP registration at fsp-register.companiesoffice.govt.nz
• ☐ Check for any FMA enforcement actions or warnings
• ☐ Confirm DIMS licence if discretionary management offered
• ☐ Review any conditions on licences

Track Record

• ☐ Past fund performance (gross and net of fees)
• ☐ Number of funds managed and years in operation
• ☐ Consistency of returns across market cycles
• ☐ Have any funds failed or significantly underperformed?
• ☐ Request audited performance data (not just marketing)

Team Assessment

• ☐ Key personnel backgrounds (LinkedIn, past roles)
• ☐ Relevant experience for this strategy
• ☐ Team stability—recent departures?
• ☐ Succession planning if key person leaves
• ☐ Skin in the game—do they co-invest?

Financial Position

• ☐ Financial health of the management entity
• ☐ How is the manager compensated?
• ☐ What happens if the manager becomes insolvent?
• ☐ Professional indemnity insurance

References

• ☐ Request references from existing investors
• ☐ Speak to advisers who have placed clients
• ☐ Check industry reputation through networks

Part 2: Investment Structure Due Diligence

Legal Structure

• ☐ Type of entity (LP, Unit Trust, Company, PIE)
• ☐ Jurisdiction and governing law
• ☐ Independent trustee/supervisor?
• ☐ Custodian arrangements for assets

Investor Rights

• ☐ Voting rights and thresholds
• ☐ Information rights (reporting frequency, content)
• ☐ Ability to remove the manager
• ☐ Tag-along/drag-along provisions

Fees and Costs

• ☐ Management fee (% p.a.)
• ☐ Performance fee (hurdle rate, catch-up)
• ☐ Entry/exit fees
• ☐ Transaction fees (acquisition, disposal)
• ☐ Administration and custody fees
• ☐ Calculate total fee drag as % of expected returns

Liquidity

• ☐ Lock-up period
• ☐ Redemption terms and notice periods
• ☐ Gate provisions (limits on redemptions)
• ☐ Secondary market options
• ☐ What triggers suspension of redemptions?

Tax Structure

• ☐ Is it a PIE (28% max tax)?
• ☐ Flow-through or entity-level taxation?
• ☐ Any withholding tax implications?
• ☐ Tax reporting provided to investors

Part 3: Asset-Specific Due Diligence

Private Credit

• ☐ Loan book composition (sector, geography, LVR)
• ☐ Security position (senior secured, mezzanine)
• ☐ Historical default and loss rates
• ☐ Loan underwriting process
• ☐ Arrears and problem loan management
• ☐ Concentration limits (single borrower, sector)
• ☐ Leverage at fund level

Private Equity

• ☐ Investment strategy (buyout, growth, venture)
• ☐ Target company size and sectors
• ☐ Value creation approach
• ☐ Past portfolio company exits (multiples, IRR)
• ☐ Current portfolio valuation methodology
• ☐ Capital call schedule and deployment pace
• ☐ Co-investment opportunities

Venture Capital

• ☐ Stage focus (pre-seed, seed, Series A+)
• ☐ Sector thesis
• ☐ Deal flow sources
• ☐ Follow-on reserve strategy
• ☐ Portfolio construction (number of companies)
• ☐ Markups and exits to date
• ☐ Engagement with portfolio companies

Property

• ☐ Property type and location
• ☐ Independent valuation (recent, reputable valuer)
• ☐ Tenant quality and lease terms (WALT, rent reviews)
• ☐ Occupancy and vacancy history
• ☐ Building condition and capex requirements
• ☐ Development: consents, construction contract, pre-sales
• ☐ Debt terms and LVR covenants

Part 4: Documentation Review

Core Documents

• ☐ Information Memorandum (IM)
• ☐ Partnership/Trust Deed
• ☐ Subscription Agreement
• ☐ Side letters (if applicable)
• ☐ Most recent audited financial statements
• ☐ Investor reports/updates

What to Look For

• ☐ Risk factors section—are risks adequately disclosed?
• ☐ Conflicts of interest—how are they managed?
• ☐ Valuation policy—who values assets? How often?
• ☐ Distribution policy—mandatory or discretionary?
• ☐ Amendment provisions—can terms be changed?
• ☐ Termination rights—when can the fund wind up?

Part 5: Red Flags

Be cautious if you encounter:

• ⚠️ Pressure to invest quickly ("closing soon")
• ⚠️ Guaranteed returns or "no risk" claims
• ⚠️ Reluctance to provide documentation
• ⚠️ Cannot speak with existing investors
• ⚠️ Unregistered or unlicensed operator
• ⚠️ Returns significantly above market norms
• ⚠️ Complex structures with no clear rationale
• ⚠️ Manager not investing own capital
• ⚠️ Recent regulatory actions or media concerns
• ⚠️ High staff turnover

Part 6: Questions to Ask

Performance Questions

1. What is your track record across all funds?
2. How did you perform in market downturns?
3. What was your worst investment and what did you learn?
4. How do projected returns compare to historical?

Process Questions

1. How do you source investment opportunities?
2. What is your investment committee process?
3. How do you manage underperforming investments?
4. What triggers an exit decision?

Risk Questions

1. What are the three biggest risks to this investment?
2. What scenarios could result in loss of capital?
3. How is the portfolio stress-tested?
4. What insurance and protections are in place?

Alignment Questions

1. How much of your own capital is invested?
2. How are you compensated?
3. What conflicts of interest exist and how are they managed?
4. Who are your other investors?

Due Diligence Process

1. Initial screening: Review IM, check registrations, basic research
2. Deep dive: Request documentation, analyse terms and track record
3. Manager meeting: Meet the team, ask questions, assess culture
4. Reference checks: Speak to existing investors, advisers
5. Legal review: Have a lawyer review key documents
6. Final assessment: Evaluate risk/return, fit with portfolio
7. Investment decision: Proceed, decline, or request changes

Conclusion

Thorough due diligence takes time but protects your capital. Don't rush—quality managers understand investors need time to evaluate opportunities. If something feels wrong or you can't get satisfactory answers, walk away.