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 A report showing a well-rounded picture of an investment has much less value if the information is out-of-date.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
Where are They Now? - AR Global Investment Programs
by Jacob Heidkamp on October 20, 2017 at 8:40 pm
Yesterday, we hosted a large GoToWebinar audience as FactRight analyst Jake Heidkamp surveyed the current statuses of certain AR Global-sponsored investment programs, including:&nbs […]
Reads on ICOs from around the web
by firstname.lastname@example.org (Brandon Raatikka) on October 17, 2017 at 8:44 pm
Initial coin offerings (ICOs) are being heralded as Crowdfunding 2.0, but that could be understating the case. So far in 2017, 200 issuances have raised approximately $3 billion, which dwarfs the amount raised under all Titles of the Jobs Act (including the technically-minted crowdfunding under Title III) since that landmark legislation went into effect. It’s no surprise, then, that widespread lack of ICO compliance with securities laws is on the SEC’s radar. Per a recent joint statement by the SEC Division of Corporate Finance and Enforcement: […]
Make Capital Markets Great Again?
by Jacob Mohs on October 12, 2017 at 8:09 pm
One thing I've noticed about dramatic news out of Washington these days is that it’s often really just the President or Congress uttering platitudes and then telling someone to write a report on something. Although the initial headlines are usually misleadingly sensational, the subsequent reports do ultimately set the tone for actual policymaking in the years that come (or at least until the platitude utterers are replaced). Actual policymaking can significantly alter the incentives and competitive pressures in markets. &nbs […]
The SEC Regulates Valuation Expert as Investment Adviser
by email@example.com (Brandon Raatikka) on October 10, 2017 at 5:46 pm
A couple weeks ago, the SEC announced a settlement with a financial services valuation firm and a former employee of the firm over charges the SEC brought under the Investment Advisers Act of 1940 through cease-and-desist proceedings. In the process, the SEC showed that it can use the Advisers Act to regulate valuation firms, which may cause some consternation for investment program issuers and their third party valuation experts. […]
Signs of Fall: Football, Daylight Savings, and Drilling Programs
by firstname.lastname@example.org (Russell Putnam) on October 5, 2017 at 7:17 pm
As the leaves start to change colors this fall, we have many things to look forward to, including the rest of the football season, daylight savings time, apple picking, and of course…..reviewing oil and gas drilling programs! The primary reason that oil and gas drilling programs are so prevalent near the end of the calendar (read: tax) year is that they offer multiple tax benefits, chief of which is the ability to deduct intangible drilling costs as a current business expense. &nbs […]
Can Third Party Evolve Into Your Party?
by email@example.com (Scott Smith) on October 3, 2017 at 5:30 pm
Third party due diligence has evolved into a critical component in the distribution of alternative investments over the past decade. Prior to the Great Recession, third party reports were helpful in the review of products, but the regulatory examiners had yet to require these reports in the every selling firms’ file. The diligence done internally by many of the firms in those days was sufficient to satisfy its obligations to the extent the regulators were enforcing them. Today, good luck finding any regulatory examiner who doesn’t first ask for a third party report when reviewing diligence files. Third party reports are all but mandatory today in any regulatory audit. […]
What Krueger v. Ameriprise Means for Investment Platforms
by firstname.lastname@example.org (Russell Putnam) on September 29, 2017 at 2:12 pm
We’re still talking here at FactRight about Professor Mercer Bullard’s presentation about the DOL Fiduciary Rule at our due diligence conference a couple weeks ago. Professor Bullard thoughtfully explored what provisions of the impartial conduct standards broker dealers ought to pay particular attention to, and over which ones fears are overblown. […]
A Closer Look at Griffin Capital’s BDC/Credit Fund Reorganization
by Jacob Mohs on September 26, 2017 at 5:35 pm
On September 18, 2017, shareholders in the BDC formerly known Griffin-Benefit Street Partners BDC Corp. (now known as Griffin Capital BDC Corp.), approved the company’s interval fund reorganization plan by a wide margin. Once this transaction is complete, the investors in the BDC will hold Class F Shares in the Griffin Institutional Access Credit Fund (Griffin Credit), an interval fund also organized under the 1940 Act. As discussed below, investment in an interval fund is subject to structural differences as compared to a BDC. Additionally, while both funds have similar investment objectives, Griffin Credit has a broad credit focused investment mandate, of which the BDC’s lower middle market directly originated loans are just one sleeve. […]
How to Read a Financial Statement [VIDEO]
by email@example.com (Chari Graham) on September 22, 2017 at 1:21 pm
In this video, FactRight’s Chari Graham takes you through performing a financial statement analysis. […]
Highlights from FactRight’s Fourth Annual Due Diligence Conference
by firstname.lastname@example.org (Brandon Raatikka) on September 19, 2017 at 8:01 pm
We’d like to thank our broker dealer and registered investment clients, as well as the sponsors, for making this year’s FactRight Due Diligence Conference—held last week at the Westin Edina Galleria—our finest yet. As the FactRight staff recovers from busy weeks of preparation and putting on the conference itself, we are grateful for the positive feedback we’ve received from many attendees. […]