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 A report showing a well-rounded picture of an investment has much less value if the information is out-of-date.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
Multifamily DST Distributions During a Pandemic
by firstname.lastname@example.org (Brandon Raatikka) on May 19, 2020 at 8:44 pm
By now, you may have heard that May rent collections have been stronger than many analysts expected, at least for some real estate asset classes. For multifamily properties—the kind that is most commonly subject to master leases in DST investment programs—rent collections as of the 13th of the month nationally were 2.7 percentage points ahead of where collections were on April 13 for that month, and off 2.1 percentage points from May 13, 2019. And April didn’t turn out so bad—94.6% of renters had made at least a partial rent payment (most made a full payment) by the end of the month, compared to 97.7% during April 2019.
Alternative Ramblings: Pandemic Edition, Part 7
by Jacob Heidkamp on May 15, 2020 at 8:01 pm
The latest Department of Labor print highlights 3 million in new unemployment claims filed in the last week bringing the cumulative total to over 36 million in the past two months. Goldman Sachs forecasts that the unemployment rate will peak at 25%, rivaling the worst period of the Great Depression.
COVID-19 and Multifamily Real Estate: May Update
by Vince Brady on May 13, 2020 at 5:45 pm
Although the full impacts of the COVID-19 pandemic on multifamily real estate have yet to be realized, early indications reveal a number of near-term challenges. This follow-on post updates FactRight’s analysis of the emerging trends that are sure to impact multifamily investment programs.
Alternative Ramblings: Pandemic Edition, Part 6
by Jacob Heidkamp on May 8, 2020 at 5:05 pm
The latest Department of Labor print highlights 3.2 million in new unemployment claims filed in the last week bringing the cumulative total to 33.5 million in the past seven weeks. The unemployment rate was reported at 14.7% by the bureau of labor and statistics. Major areas of job losses included:
FactRight Webinar: COVID-19 Update on Publicly-Registered Alternative Investments
by Jacob Heidkamp on May 8, 2020 at 2:00 am
In case you missed out...