Questions about FactRight?
This FAQs page is designed to answer some general questions about third party due diligence. If you’re looking for more information, consider visiting our pages on FR Risk Management and FactRight’s due diligence reporting services.
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 A report showing a well-rounded picture of an investment has much less value if the information is out-of-date.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.
Outsourced Risk Management Solutions
Recent Blogs from FactRight
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Four Steps Financial Planners Can Take to Use Alternative Investments Confidently and Prudently
by Mario Nardone on August 17, 2017 at 9:01 am
Financial planners tend to enjoy (or at least prefer) spending time with their clients, helping detangle and re-organize many facets of their finances, and encouraging them to live enriched and fulfilling lives, to borrow oft-cited adjectives from their corporate missions. Running a holistic practice and maintaining expertise on a broad swath of topics from insurance to taxes can leave little room on their calendars for investment due diligence, yet many advisors lose sleep over whether or not they are fulfilling their fiduciary duty in this aspect of their practice. […]
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How to Read a Form 10-K [VIDEO]
by Jacob Mohs on August 15, 2017 at 8:17 pm
Clients frequently ask us how they can make proper use of the wealth of information available in SEC filings. One of the key filings that we use in our due diligence reviews is a Form 10-K, which contains the annual report filed by companies. These documents contain a wealth of disclosures, but there are three sections that are absolutely key to understanding the company and the progress it is making.&nbs […]
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What are the Costs of a Low Integrity Environment?
by Kristy Grant-Hart on August 10, 2017 at 6:49 pm
Fines. Loss of share value. Firings. Public shame.&nbs […]
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Socially Conscious Due Diligence
by kemp@factright.com (Kemp H. Hanley) on August 8, 2017 at 11:00 am
Socially conscious investing has captured increased buzz recently. Generally, it involves investing in companies that are committed to environmental, social, and governance (ESG) causes, or else avoiding companies that engage in “sin” industries. As can be expected, iShares, Vanguard and others have developed funds that target the socially responsible investor. According to the United States Forum for Sustainable and Responsible Investments, ESG currently captures $1 for every $6 under professional management in the United States. According University of Oxford researchers: […]
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How to Use a Due Diligence Report [VIDEO]
by brandon@factright.com (Brandon Raatikka) on August 4, 2017 at 9:17 pm
In this video, Brandon Raatikka walks through how to use a third party due diligence report while evaluating an alternative investment option.&nbs […]
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Interact with FactRight's Reg A+ Database
by brandon@factright.com (Brandon Raatikka) on August 2, 2017 at 8:39 pm
According to FactRight's tracking, the SEC qualified 21 Reg A+ Tier 2 offerings in the second quarter of 2017, maintaining a brisk pace by the standards of Reg A+’s relatively short history. Approximately 45% of the 96 Tier 2 offerings qualified since late 2015 (not later withdrawn or used for merger purposes) have been qualified in just the first half of this year. […]
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How One Little Accounting Change May Significantly Alter Non-traded REIT Financial Analysis
by Jacob Heidkamp on July 28, 2017 at 10:05 pm
The Financial Accounting Standards Board (FASB) recently updated the definition of a business, which has implications for financial statements and the analysis of REITs. Accounting Standard Update 2017-01, released in January 2017 and effective Q4 2017, creates a framework to evaluate whether a property acquisition is classified as a business combination or an asset acquisition. Companies may elect early adoption prior to Q4 2017, as Griffin Capital Essential Asset REIT II, and Steadfast Apartment REIT III (STAR III) have already done. […]
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6 Implications of Rising Interest Rates on Real Estate Investments
by scott@factright.com (Scott Smith) on July 25, 2017 at 9:51 pm
Rising interest rates do not automatically result in lower real estate values or dividends. Rather, how rates affect real estate returns is complex and depends upon a myriad of factors. Property performance trends have been historically resilient during times of rising interest rates.&nbs […]
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What is Real Estate Due Diligence?
by scott@factright.com (Scott Smith) on July 21, 2017 at 6:46 pm
Many investors approach the real estate due diligence process less seriously than they should. Even sophisticated investors can be guilty of doing this. Broker dealers and registered investment advisors can help protect impulsive (or know-it-all) clients from themselves by becoming more informed about the importance of doing due diligence before investing in real estate ventures.&nbs […]
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How to Get the Most Out of Onsite Visits [VIDEO]
by chari@factright.com (Chari Graham) on July 19, 2017 at 8:30 pm
At FactRight, we believe that onsite visits are critically important to our due diligence process. That is why we conduct an onsite visit in virtually all of our due diligence projects. Luckily, there are steps you can take to ensure an effective onsite visit. […]