You've done your homework. You understand real estate debt funds. You've read about first-lien security, capital stack positioning, and the yield advantages over bonds and dividend stocks.

Now comes the hardest part: choosing which fund manager to trust with your capital.

This is where due diligence separates the sophisticated investor from the casual one. A casual investor asks about returns. A sophisticated investor asks about risk management, team stability, underwriting discipline, and operational transparency.

In this guide, we'll walk you through 10 substantive questions that every accredited investor should ask any private lending fund manager before committing capital. These aren't gotcha questions. They're the legitimate checkpoints that institutional investors, such as family offices and endowments, use when evaluating fund managers.

A strong manager will welcome these questions. A weak manager will dodge them.

Question 1: What Are Your Actual Net-to-Investor Returns Over the Last Three Fund Cycles?

Why this matters: The difference between gross returns and net returns can be 200-300 basis points (2-3%). A fund advertising "10% returns" that nets out to 7% after fees is telling you a very different story than one delivering 9.5% net. You need net numbers from completed funds across multiple cycles.

What a transparent manager will provide:

• Net IRR (internal rate of return): The actual performance of their last 3-5 funds after all fees are deducted.

• An honest fund breakdown: Clear visibility into gross returns, management fees, and expense drag.

• A historical benchmark: A direct comparison of actual performance against their original stated target returns.

• Accountability: An honest discussion of any underperforming funds and the lessons learned.

Red flags to watch out for:

• Relying on gross returns: Quoting top-line numbers before fees are taken out.

• Cherry-picking timelines: Referencing "since inception" historical numbers just to include their best early funds.

• Vague fee structures: Claiming they have "competitive fees" without showing the actual mathematical impact on your yield.

The math matters: If a fund charges a 1% management fee + 20% performance fee on 12% gross returns, your net is closer to 8.4% after fees. If they charge 0.75% + 15%, your net is 9.5%. That 110 basis point difference compounds into real money over a 3-5 year fund cycle.

Ask for the numbers. If they won't provide them, move on.

Question 2: What Is Your Actual Default History? What Did You Recover in Defaults?

Why this matters: The default rate only tells you half the story. A manager with a 4% default rate but a 90% recovery rate is in a materially better position than one with a 2% default rate and only a 60% recovery rate. To accurately assess risk, you need both numbers, plus the operational history of how those defaults were handled.

Indicators of Strong Management:

• Explicit metrics: Clear historical default rates (typically 1-4% for first-lien) and precise average recovery rates (typically 85-97%).

• Real case studies: Detailed walk-throughs of 2-3 actual default scenarios, covering root causes, recovery procedures, and lessons learned.

• Clear communication: Full transparency around how defaults were communicated to investors.

• External benchmarks: Contextualizing performance against Moody's or Federal Reserve lending data.

Indicators of High-Risk Management:

• Quoting default rates without recovery rates.

• Claiming "we haven't had meaningful defaults" (a red flag indicating either lack of tenure, cherry-picked data, or hidden problem loans).

• Deflecting to general market conditions rather than addressing underwriting discipline.

• Refusing to discuss specific defaulted deals.

The reality check: According to the Federal Reserve Commercial Real Estate Lending Survey, first-lien real estate lenders experienced 2.1-2.8% default rates in recent cycles. If a manager claims zero defaults, ask why they're performing better than Federal Reserve data suggests.

Question 3: Walk Me Through Your Underwriting Standards. What Is Your Average Loan-to-Value?

Why this matters: Underwriting discipline is the difference between structural safety and severe capital loss. Two funds with the same 9% target return can have vastly different risk profiles based on Loan-to-Value (LTV) and Debt Service Coverage Ratio (DSCR) standards.

Indicators of Strong Underwriting Discipline:

• Conservative LTV ceiling: A clear, defined target (e.g., a portfolio-wide target of 62% LTV) ensuring an equity cushion protects capital from day one.

• Asset-class specific guidelines: Boundaries on leverage based on specific risk profiles (stabilized bridge vs. value-add vs. construction).

• Historical portfolio compliance data: Evidence showing the average actual LTV across their active portfolio rather than theoretical targets.

• Rigorous stress-testing methodology: Clear modeling for worst-case scenarios, such as a 15-20% property value decline or rising exit cap rates.

• Deal rejection criteria: Real examples of opportunistic deals walked away from specifically due to strict leverage thresholds.

Signs of Insufficient Transparency:

• Omitting actual portfolio metrics: Quoting target LTVs while refusing to share active portfolio averages.

• Chasing yield with high leverage: Routinely pushing LTVs past 70% or 75% to win deals.

• Relying on "flexibility": Using phrases like "we're flexible on structure," which is often industry shorthand for loose underwriting.

• Vague screening processes: Avoiding discussions about declined deals or failing to articulate screening constraints.

Why this matters for your capital: According to industry lending analysis, lenders operating above 70% LTV experienced 3.8x higher default rates than those staying below 65% LTV during market stress periods. Ask for portfolio-level averages.

Question 4: How Is the Fund Legally Structured? What Are the Tax Implications for Me as an LP?

Why this matters: Fund structure determines your tax basis, treatment of distributions, liability exposure, and access to tax benefits like depreciation pass-throughs.

What a transparent manager will provide:

• Clear legal entity type: Standard structures like Delaware LLCs or LPs.

• Distribution clarity: Plain language on whether distributions are taxed as ordinary income, capital gains, or a mix.

• Reporting documentation: Explicit schedule for K-1 (or 1099) tax forms and sample K-1s from prior funds.

• Tax benefit breakdown: Transparent accounting of whether depreciation benefits flow through to LPs.

Red flags to watch out for:

• Deflecting with "your CPA can figure it out" instead of outlining structural mechanics.

• Claiming non-existent tax advantages without providing supporting documentation.

• Using overly complex or opaque multi-layered structures requiring specialized, costly accounting.

Question 5: What Are All the Fees? Management, Performance, Closing, and Administrative.

Why this matters: Total fee drag determines whether a 12% gross return nets out to 9.5% or 7%. You need the complete, all-in financial picture.

What a transparent manager will provide:

• Management fee: Stated percentage of AUM (typically 0.75-1.5%).

• Performance fee & hurdle rate: Clear terms (e.g., 10-20% performance fee above a 7-8% preferred return hurdle).

• Ancillary fees: Full disclosure of any closing, entry (0.5-1%), audit, pass-through, or redemption fees.

• Sample calculation: A standard mathematical example showing exact fee subtractions from a hypothetical distribution.

Red flags to watch out for:

• Quoting only the top-line management fee while hiding performance fees in dense legal filings.

• Using vague or shifting definitions for hurdle rate calculations.

• Layering unannounced administrative and legal costs directly onto the fund.

Question 6: How Many Loans Are in the Current Fund? What's Your Maximum Concentration Limit?

Why this matters: Concentration risk dictates your downside exposure. A $200M fund spread across 15 loans carries a radically different risk profile than one spread across 40 loans.

What a transparent manager will provide:

• Diversification targets: Clear target loan counts (typically 20-30 loans for optimal balance between risk and return).

• Concentration limits: Firm caps on single-borrower or single-asset exposure (typically max 5-10% of total fund capital).

• Portfolio breakdown: Clear distribution across geographic regions and asset types (multifamily, industrial, retail, etc.).

• Active schedule: Full schedule detailing individual loan amounts, asset types, LTVs, and locations.

Red flags to watch out for:

• Statements like "we're as concentrated as we need to be."

• Massive single-deal exposure without clear structural risk mitigation.

• Refusal to share a basic loan portfolio schedule with prospective accredited investors.

Question 7: Who Are Your Key Decision-Makers? How Long Has the Team Been Together?

Why this matters: Real estate debt performance is deeply team-dependent. High turnover among senior underwriting and portfolio management personnel introduces major operational risk.

What a transparent manager will provide:

• Detailed organizational chart: Clear roles for portfolio managers, credit officers, and operations leads.

• Deep industry tenure: Senior leadership with 10+ years of dedicated lending experience and 5+ years working together at the current firm.

• Aligned incentives: Direct GP co-investment ("skin in the game") and standard carried interest structures.

• Formal succession planning: Clear operational continuity plans in the event key personnel step down.

Red flags to watch out for:

• High recent turnover across executive and underwriting teams.

• Solo-founder structures lacking key leadership depth or institutional risk controls.

• Absence of meaningful GP capital invested alongside LP funds.

Question 8: How Do You Communicate with Investors? What Reporting Do I Receive?

Why this matters: Proactive, detailed communication during volatile market conditions separates institutional-grade operators from reactive fund managers.

What a transparent manager will provide:

• Regular reporting cadence: Detailed monthly or quarterly reporting covering portfolio composition, distribution summaries, and loan performance.

• Independent verification: Annual financial statements audited by an accredited third-party accounting firm.

• Direct engagement: Quarterly webinars, market updates, and access to an online portal with loan-level detail.

• Dedicated point of contact: Direct access to investor relations professionals for ongoing portfolio inquiries.

Red flags to watch out for:

• Reporting limited solely to basic year-end tax forms or single LP meetings.

• Absence of annual independent financial audits.

• Obscuring loan-level details or withholding performance metrics during market downturns.

Question 9: How Have You Performed in Rising- and Falling-Rate Environments? Walk Me Through 2022-2024.

Why this matters: The 2022-2024 rate-hike cycle served as a major stress test for commercial real estate debt. Evaluating actual performance during this window reveals how a manager handles real-world market pressure.

What a transparent manager will provide:

• Hard performance data: Unedited distribution data from the 2022-2024 period.

• Workout history: Honest accounting of borrower refinance challenges, defaults, and exact recovery rates during high-rate periods.

• Strategic pivots: Evidence of proactive portfolio adjustments (such as tightening LTVs or shifting focus to preferred asset classes).

• Stable distributions: Proof that LP payouts remained reliable relative to market benchmarks.

Red flags to watch out for:

• Blaming underperformance entirely on macroeconomic conditions without outlining corrective management actions.

• Significant, unexpected drops in distributions without prior investor notice.

• Refusal to share specific loan-workout metrics from recent volatile years.

Question 10: Can You Provide Three References from Other Accredited Investors Currently in Your Funds?

Why this matters: Direct feedback from existing LPs provides essential insight into operational reliability, communication cadence, and post-investment support.

What a transparent manager will provide:

• Diverse references: Direct contact details for 3-5 active investors across various investment sizes and fund vintages.

• Unrestricted access: Willingness to let prospective LPs speak candidly with long-term investors.

Red flags to watch out for:

• Complete refusal to offer references citing "confidentiality" (existing LPs can easily opt-in to serve as references).

• Providing references limited exclusively to firm insiders, immediate family, or institutional founders.

The Stallion Capital Position

We encourage every prospective investor to ask these 10 questions-of us and of any other manager under consideration.

Here is where we stand:

• Net returns: Our last three funds delivered 8.7%, 9.2%, and 8.9% net after all fees.

• Defaults & recovery: 2.1% average default rate over 12 years, with a 96% recovery rate.

• Underwriting: Average portfolio LTV of 58% and average DSCR of 1.4x. Every loan is stress-tested against a 20% property value decline.

• Structure: Delaware LLC with K-1 tax reporting and depreciation flow-through options.

• All-in fees: 0.85% management fee + 15% performance fee over an 8% preferred hurdle rate. Average all-in expense drag: 135 basis points.

• Diversification: Currently 22 active loans across Texas, Arizona, and Florida, with no single borrower exceeding 6% of total fund capital.

• Team: 8-year average team tenure; senior portfolio managers average 15+ years in commercial real estate lending. Significant GP co-investment.

• Communication: Monthly updates, quarterly performance statements, annual audited financials, and quarterly investor calls.

• Track record: Maintained 8.5%+ net returns through 2022-2024 market volatility with zero missed distributions.

• References: Direct contact details for current LPs across multiple fund cycles available upon request.

Final Thought

Due diligence isn't paranoia. It's professionalism.

The right fund manager-whether Stallion or another firm-will welcome rigorous questions. They'll have clear answers backed by data. Their team will be stable, their fees transparent, and their communication consistent.

The wrong manager will dodge, deflect, or hide behind complexity.

After asking these 10 questions of multiple managers, the decision becomes clear. You commit capital to the manager with the clearest answers, the strongest track record, and the most transparent operation. That is how wealth is preserved and compounded in private credit.

Sources & References

Federal Reserve & Official Banking Data

• Board of Governors of the Federal Reserve System (2024). Senior Loan Officer Opinion Survey on Bank Lending Practices.

• Federal Reserve Bank of New York (2025). Commercial Real Estate Lending Conditions & Risk Assessment.

• Office of the Comptroller of the Currency (2024). Commercial Real Estate Lending Survey & Default Analysis.

Credit Rating Agencies & Performance Benchmarks

• Moody's Investors Service (2024). Commercial Real Estate Lending Default and Recovery Study.

• Preqin (2024). Private Debt Fund Performance Database & Benchmarking.

• Bloomberg (2025). Commercial Real Estate Lending Trends & Fund Manager Benchmarking.

• IRS Publication 550 (2024). Investment Income and Expenses.