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 A report showing a well-rounded picture of an investment has much less value if the information is out-of-date.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.
Recent Blogs from FactRight
- Highlights from FactRight's 2023 RIA Spring Due Diligence Conferenceby email@example.com (Sarah Thommes) on March 23, 2023 at 4:42 pm
We say this every conference, but we are so beyond grateful to all of you for making this Spring RIA Due Diligence Conference in beautiful Scottsdale, Arizona such a success! With over 350 total attendees, the FactRight staff cannot be more appreciative of your continued support and participation.
- Due Diligence Considerations: the Continuum from Conflicts of Interest to Alignment of Interestsby Julie Olsen on February 22, 2023 at 6:39 pm
Alternative investments programs involve many conflicts of interest, and offering documents often have an entire risk disclosure section dedicated to this issue. But not all conflicts are the same and vary by product and sponsor. Assessing conflicts really come down to two central questions:
- What a High Home Prices-to-Income Ratio Could Mean for Residential Real Estate Programsby firstname.lastname@example.org (Steve Sims) on January 26, 2023 at 7:18 pm
Over the past several years, FactRighthas seen a trend in increased demand for residential real estate investment programs (e.g., multifamily, build-to-rent, single family residences).While our offering-level reports provide a market overview at the MSA-level, I wanted to goa few levels higher to the national scale. This blog primarily looks at the relationship of single-family home prices and income in the United States to answer the following question:What are the implications for residentialreal estate programs if housing is overpriced relative to historic norms?
- Lapses in Due Diligence and the Collapse of FTX: How Could so Many Have Missed so Much?by Jeff.B@factright.com (Jeff Baumgartner) on December 13, 2022 at 9:16 pm
By now, you may be generally familiar with the recent collapse of FTX, and some of the reasons for its failures are obvious. But by examining FTX side-by-side with perhaps the most infamous investment fraud ever perpetrated, we can discover some keys as to why lapses in due diligence may never be a thing of the past. These two epic failures bear little factual resemblance to one another at first glance, but this post will look more closely at the more transcendent lessons they hold.
- All Preferred Shares Not Created Equal – Why FactRight Incorporates Scenario Analysis in our Analysis of Preferred Securitiesby email@example.com (Kevin Kirkeby) on November 30, 2022 at 9:21 pm
It should come as no surprise that the old investment adage about getting what you pay for holds true for preferred stock, too. Despite often being pitched as a bond alternative, especially lately, there are multiple factors beyond dividend yield to consider. Among the features, an investor needs to understand are the liquidity provisions, dividend policy, and preferred shareholder rights. Sponsors tend to get irritable when FactRight stress tests their pro forma model or highlights weak investor protections, dismissing the concerns as implicating scenarios highly unlikely to ever occur. However, sometimes the unlikely or improbable does occur. This post will focus on a real scenario involving several preferred securities that underscores the need for due diligence in these areas.