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 A report showing a well-rounded picture of an investment has much less value if the information is out-of-date.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
How RIAs Warming to Annuities Could Be a Positive Sign for Distribution of Alts
by firstname.lastname@example.org (Scott Smith) on March 12, 2019 at 5:07 pm
The other day, I was reading an article on RIABiz that’s worth discussing here on FactRight’s blog, as it hits on themes that are analogous to alternatives investments, even though it’s not an article about alternatives at all. […]
Reg A+ Quarter 4 Overview: Waiting for Legislative Upgrades
by email@example.com (Brandon Raatikka) on February 28, 2019 at 8:48 pm
After the second quarter posted the lowest number of new issuance qualifications during a quarter since Regulation A was reformed, qualifications bounced back in the third and fourth quarters. Overall, 2018 had the same number of Reg A+ qualifications (not used for merger or other limited purposes) as last year—75. […]
Interval Fund Market: 2018 in Review
by firstname.lastname@example.org (Jacob Mohs) on February 19, 2019 at 7:00 pm
The interval fund market reached new heights in 2018, setting records for total net assets and new fund launches. This post will examine key metrics from last year that illustrate the growing popularity of the space with managers and investors. […]
Can Vertical Capital Make Its Liquidity Great Again?
by Jacob Heidkamp on February 4, 2019 at 7:15 pm
Recently, Vertical Capital Income Fund filed a definitive proxy through which the board of directors is seeking shareholder approval for eliminating the fund’s fundamental policy of making quarterly repurchase offers for a minimum of 5% of the total outstanding shares at NAV. This post will explore the implications of such a path, and briefly consider alternatives that might meet shareholder liquidity needs and better preserve shareholder value. &nbs […]
Fees and Metrics for DST Offerings in 2018
by email@example.com (Brandon Raatikka) on January 22, 2019 at 6:43 pm
Real estate-related Delaware statutory trust offerings raised nearly $2.5 billion in 2018, one of the strongest annual tallies in the 1031 retail syndication market’s 15+ year history, according to Mountain Dell Consulting. In the past year, FactRight has reviewed a great deal of these offerings for clients. Here are the medians for key metrics from DST offerings that FactRight saw in 2018: […]