Alternative investment due diligence: a practical UK checklist

Alternative investments are often sold through a compelling asset story: property, renewable energy, litigation, private credit, storage, commodities or an opportunity said to sit outside ordinary markets. The story may be genuine, but it is not due diligence.

Good due diligence separates five questions that marketing tends to blend together: what the product legally is, who controls the relevant companies, where the money goes, what security or contractual rights actually exist, and which protections would apply if something failed.

This checklist is designed for UK investors reviewing a prospective or existing holding. It cannot determine whether an investment is suitable and it is not a substitute for regulated financial or legal advice.

1. Identify the product before assessing the promise

Start with the legal documents, not the brochure. Record the exact issuing entity, company number, product name, instrument type, term, stated return, payment schedule, maturity process and governing law. If the investment is described differently across the application form, bond instrument, website and emails, list those differences rather than choosing the most reassuring version.

Ask what your money buys. It might be a share, a loan note, a membership interest, a beneficial interest, an interest in a fund, or only a contractual right against one company. These structures create different rights. An asset-backed marketing label does not itself establish that an investor owns the asset or holds enforceable security over it.

• Keep a dated copy of the offer document, application, signed agreement and terms.
• Match every company name to its Companies House number. Similar names are not interchangeable.
• Write down the promised use of funds and the contractual restrictions on changing it.
• Identify who receives the money, who holds the asset and who owes the payment.

2. Check the firm, activity and permissions

The FCA says that almost all UK financial services firms must be authorised or registered. Use the FCA Firm Checker and, where historic detail matters, the Financial Services Register. Match the firm reference number and contact details independently. Do not rely on a register link supplied by the promoter because clone-firm scams can copy the identity of a real authorised business.

Authorisation is not a blanket approval of every product a firm mentions. Check whether the named firm has permission for the specific service involved and which legal entity is performing it. The FCA also notes that businesses generally do not need authorisation merely to raise money by issuing mini-bonds, although related advice or distribution services may be regulated. That distinction is crucial.

3. Verify protection instead of assuming it

FSCS states that eligible investment claims can be protected up to £85,000 per person, per firm when a relevant provider or adviser has failed. It also makes clear that some investment products are not protected and that it does not compensate for ordinary poor investment performance. Ask the provider to explain, in writing, which regulated activity and legal entity create the claimed protection, then check that explanation against the FCA and FSCS information.

• Is the provider or adviser authorised by the PRA or FCA?
• Was the specific service regulated when it was provided?
• Is the product itself within the relevant protection rules?
• Would the likely failure scenario be covered, or is it simply investment loss?
• Are you eligible, and is the named firm the one that would owe the relevant duty?

4. Map the companies and people

Search every material company on the Companies House register: the issuer, asset owner, operating company, security trustee, payment agent and parent company. Review filing history rather than the latest status alone. Note incorporations, name changes, directors, people with significant control, registered addresses, accounts, confirmation statements and charges.

A young company or a director change is not automatically negative. The useful question is whether the corporate record supports the commercial account you were given. If a brochure describes a long operating history but the contracting company was recently incorporated, establish which entity performed the earlier work and whether its obligations support your investment.

5. Follow the money and test the security

Turn the proposed transaction into a simple flow: investor to recipient, recipient to project or borrower, project revenue back to the paying entity, and paying entity back to investor. Look for fees, related-party transfers, unsecured lending, discretion to substitute assets and dependence on continual new investment. Complexity is not proof of wrongdoing, but every additional entity creates another place where rights and cash can diverge.

If the investment is promoted as secured, obtain the security document and identify the security holder, charged assets, ranking, prior charges, enforcement triggers and release terms. Companies House defines a charge as security a company gives for a loan. A registered charge is evidence that security was registered; it is not a valuation of the asset, a statement that the security ranks first, or a guarantee of recovery.

6. Stress-test the payment and exit assumptions

Ask what economic activity produces the return and principal repayment. Then test what happens if revenue is late, the asset sells below forecast, refinancing is unavailable, a key counterparty fails or withdrawals rise. A fixed contractual return does not make the underlying economics fixed.

• What is the primary source of interest payments?
• Is maturity funded by operating cash, an asset sale, refinancing or new subscriptions?
• Can the issuer extend, defer, suspend or capitalise payments?
• Is there an independent valuation, and what date and assumptions does it use?
• Who controls the bank account and who verifies use of funds?

7. Create an evidence record you can update

Due diligence should not end on the investment date. Save the signed documents, payment proof and claims that influenced the decision. Record material filings, notices, payment performance and explanations in date order. Keep verified public facts separate from promoter statements, investor reports and your own interpretation.

The goal is not a one-word verdict. It is a clear record of what is known, what remains unverified, which assumptions matter, and what change would justify a closer review. That record is more useful than a folder of disconnected documents if the position later changes.