Anything not a stock, bond, or cash investment is generally considered an alternative investment. Examples of common alternative investments include hedge funds, real estate investment trusts (REITs), private placement funds, closed-end 40 Act funds, and Reg A companies seeking capital.
Like a traditional stock or bond investment, alternatives have their pros and their cons. Disadvantages include the potential for high initial fees, less liquidity, and a longer investment horizon. But alternatives also can have distinct advantages over the traditional investment market, such as lower correlation to the broader markets, tax benefits, or protection against inflation. For the right investor or financial advisor, alternative investments can be a useful tool to diversify a portfolio.
When looking to outsource due diligence, you want to be sure you are getting a complete, unbiased picture of the investment or sponsoring organization. Good questions to ask are: How does the due diligence provider work with the sponsor? What other information sources do they use? What types of experts do they employ and what are their specific areas of expertise? Finally, what time frame can you expect to see information in? A report showing a well-rounded picture of an investment has much less value if the information is out-of-date. FactRight delivers up-to-date information that can be used to guide decision-making today.
This concern is very valid. Third party due diligence is often paid for directly by product sponsors, and the users of the report (the financial service professionals who work with alternatives) receive the information for free. Regulatory agencies have historically accepted seller-funded diligence as long as it remains impartial. We believe, however, that this method may come under increased scrutiny by regulators as the financial services industry more widely adopts fiduciary standards and principals.
How does FactRight remain impartial? By scrutinizing every piece of information available. Our financial and legal experts dissect the sponsor or offering, looking specifically for gaps in information or questionable interpretations. We also bring in data from other market-relevant sources to create a holistic, unsentimental picture of the sponsor/offering.
Once factual review is complete, the sponsor is allowed to verify the accuracy of the data from an abridged draft report—one without any discussion of risks, strengths, or conclusions or recommendations. Suggestions on this material are only considered if the sponsor can provide significant supporting evidence. When the report is finalized—including our overall findings—it is published on our Report Center, to which the sponsor does not have access.
For financial services firms that are interested in requesting their own sponsor-free due diligence reviews and platform recommendations, we offer our custom FR Risk Management service.
No one can keep their eye on everything all the time. FactRight’s team of financial and legal experts are always watching and reviewing the constantly changing environment of alternative investments so that you don’t have to.
At FactRight, we specialize in understanding and explaining the complex world of alternative investments. We determine where an investment is strong or risky and explain how fluctuations in regulations or the market will affect those investments. This is all we do and we do it well. Partnering with FactRight allows you to focus on the specific needs of your business and the individualized needs of your clients.
Recent Blogs from FactRight
Some Thoughts on DST Program Exits
by firstname.lastname@example.org (Brandon Raatikka) on July 12, 2018 at 5:55 pm
These days, we’re seeing increasing innovation in anticipated exit strategies for DST programs. With real estate values currently hovering near or at record highs, and the expectations that rising interest rates will someday take capitalization rates with them, it’s easy to see why sponsors are focusing on exit strategies—today’s products need to be designed to return investor capital in an uncertain tomorrow (while enabling future tax deferral). […]
Meet the FactRight Team - Chari Graham
by email@example.com (Scott Smith) on July 3, 2018 at 5:19 pm
For today’s Meet the Team post, we’ll hear from Chari Graham, FactRight’s Chief Operating Officer and tech early adopter.&nbs […]
RIAs and Alternative Investments Part 2: Types of Firms
by firstname.lastname@example.org (Scott Smith) on June 26, 2018 at 9:18 pm
As we continue to meet with registered investment advisors that want to enhance client service and grow their assets under management through alternative investments, we pick up more critical insights that will help us deliver the right solutions to this group. […]
SEC Official Opines on Whether Digital Tokens are Always Securities
by email@example.com (Brandon Raatikka) on June 21, 2018 at 7:37 pm
Recent comments by the Director of the SEC’s Division of Corporate Finance shed light on the agency’s developing approach to deal with the bourgeoning initial coin offering (ICO) and cryptocurrency markets. […]
Meet the FactRight Team - Scott Smith
by firstname.lastname@example.org (Scott Smith) on June 19, 2018 at 9:00 pm
We’ll continue our Meet the Team blog series by chatting with Scott Smith, president and CEO at FactRight and family man.&nbs […]
SharesPost 100 Fund's Sven Weber Talks Late-Stage Company Investment
by Jacob Heidkamp on June 13, 2018 at 8:29 pm
As alternative investments increasingly enter the mainstream, retail investors are gaining access to opportunities and investment strategies that traditionally had been available only to institutional investors. We’re reviewing more programs that fit this description for our clients these days. Many of these programs are structured as closed-end interval funds, which require periodic liquidity for shareholders. Interval funds feature diverse investment strategies, including traditional alternative investment asset classes such as real estate and credit. They may also be used for more esoteric strategies, such as insurance linked securities or structured finance securities.&nbs […]
FactRight Hires John Paliotta, Expands Executive Team
by email@example.com (Scott Smith) on June 12, 2018 at 5:40 pm
In response to the growing need for improved diligence practices across the alternative investment industry, we’re happy to announce that FactRight has hired John Paliotta to fill the new position of vice president of business development. We created this position to better support small to mid-size firms and advisors in implementing risk management best practices and essential due diligence processes. […]
Best Practices for Investment Committees for Alts
by Gail Schneck on June 8, 2018 at 1:56 pm
Through FactRight’s TrueDiligence platform, we help broker dealers and registered investment advisors select best-in-class programs for their alternative investment platforms. We also work with our clients to ensure that they have time-tested processes and procedures in place for when the regulators come knocking. When it comes to processes and procedures, some of the very first questions our clients ask us relate to the role and composition of the investment committee for alternative investments. Let’s tackle some of the most common questions here. […]
DST Due Diligence in a Hot Market
by firstname.lastname@example.org (Brandon Raatikka) on June 5, 2018 at 9:30 pm
After major tax reform spared the 1031 exchange tax deferral treatment for like-kind real estate, the syndicated 1031 market is poised to extend its growth streak. Equity sales of Delaware statutory trust (DST) offerings were nearly $2 billion last year, a 10-year high. According to Mountain Dell Consulting, equity raised during the first quarter of 2018 was up 50% from the same quarter last year, and the market could be on track for a $2.5 billion year. […]
What We’re Learning About RIAs and Alternative Investments
by email@example.com (Scott Smith) on June 1, 2018 at 5:30 pm
For the past couple of weeks, I’ve been on the road with John Paliotta, FactRight’s new vice president of business development. Our goal was to get out in the trenches and meet with registered investment advisors who are actively seeking to incorporate alternative investments into the solution suite they offer to clients and to hear about their experiences and their frustrations. As we hear their stories, it’s clear that RIAs are becoming increasingly savvy about alts. They view alternatives as a key to distinguishing their practices, enhancing the performance of their clients’ portfolios, and growing assets under management in a way that comports with their fiduciary duties. They also recognize their own limitations and the obstacles that stand in the way of full integration of alternatives into their platforms.&nbs […]