What Is a PPM Audit?
A PPM (Private Placement Memorandum) audit is a structured review of an AIF's foundational offer document to confirm that (a) the fund's actual operations match what the PPM describes, and (b) the PPM itself remains compliant with current SEBI regulations, which are amended frequently.
Why PPM Audits Matter More Than They Seem To
The PPM isn't just marketing collateral — it's the operative contract between the fund and its investors. Every mechanic that determines how money moves — drawdowns, subsequent closings, catch-up contributions, management fees, the distribution waterfall, carried interest — is governed by PPM language. When fund operations quietly diverge from PPM text, that gap is exactly what becomes an investor grievance or a SEBI observation.
What a PPM Audit Actually Checks
1. Regulatory Currency
Confirming the PPM reflects the current SEBI (Alternative Investment Funds) Regulations, 2012 as amended — categorisation rules, investment conditions, and disclosure requirements change periodically, and PPMs drafted even two or three years ago can quietly fall out of step.
2. Internal Consistency
Checking that defined terms are used consistently — "Catch-up Contribution," "Imputed Cost," "Equalisation," "Hurdle Rate," "Committed Capital" — across every section that references them, including the financial model built off the PPM.
3. Closing Mechanics
Verifying that subsequent-closing provisions (NAV-based unit allotment, catch-up contribution formulas, day-count conventions for imputed cost) are drafted precisely enough to be executed without ambiguity by the fund accountant.
4. Fee and Waterfall Clarity
Confirming management fee basis, hurdle rate, catch-up provisions for the manager, and carry computation are unambiguous and match what's actually being charged.
5. Risk Factors and Disclosures
Ensuring risk disclosures are current and specific to the fund's actual strategy — generic, templated risk sections are a recurring weak point.
When Should a PPM Audit Happen?
Ideally: before every subsequent closing, annually as a standing practice, and immediately after any material SEBI regulatory amendment affecting AIFs.
How We Help
We review PPMs clause-by-clause against both current SEBI regulations and the fund's actual financial model — including building out numerical illustrations of subsequent-closing scenarios to confirm the PPM's language actually produces the intended investor outcome.
This article is for general informational purposes. Please consult us before relying on it for a specific fund's PPM.