RISK MANAGEMENT SERVICES

Today, we’re talking about a place where the due diligence knowledge flows like wine, where the RIAs instinctively flock like the salmon of Capistrano. Are we talking about a little place called Aspen? No. We’re talking about the Fulfilling Your Fiduciary Responsibility—Research and Due Diligence for Alternatives panel at the Sealy Investment Securities virtual RIA Summit.

Trigger warning: use of the phrase "unprecedented times." Remember precedented times? Yeah, me neither. You were all set to go to that due diligence meeting or industry conference in March or April. Plane and hotel booked. Then, it all changed. I bet that until mid-March, you never thought about the term force majeure. Or tried to spell it (bless the god of spellcheck). Or heard it pronounced. If you had, it was years ago summarizing your law school contract professor's entire two-minute discussion as something like "boilerplate provision - FM = act of God - impossibility defense - rarely brought up - remember for the bar exam."

We’re excited to announce the launch of FactRight’s new, enhanced Report Center website!  

Advisory practices of all types have been growing steadily over the past several decades through applying various practice approaches and structures that emphasize their fiduciary responsibility to act in the best interest of the client. As fiduciaries, most advisors have utilized primarily or even exclusively public market securities such as individual stocks and bonds, mutual funds and exchange traded funds (ETFs) to deliver their professional investment services.

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.

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.

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. 

Earlier this week, Preferred Apartment Communities, Inc. (PAC), a notable issuer in the alternative securities industry, unexpectedly lost its founder, chief executive officer, and chairman John Williams. Mr. Williams was known to many in the business, although his influence extended far outside the industry. In FactRight’s interactions with him, we found Mr. Williams to be engaging and courteous, consistent with his high reputation.

Golf fans around the world spent last Sunday afternoon glued to their TVs to watch the best golfers in the world vie for the sacred green jacket. The green jacket is awarded by Augusta National Golf Club each year to winner of its Masters Tournament. On Sunday, hard-charging Jordan Spieth (who nearly tied the course record), the always-stylish Rickie Fowler, and Patrick Reed, who held on to claim his first green jacket, provided the perennial Sunday drama.

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.