Although commodity pools/managed futures programs are subject to additional regulation by the Commodities Futures Trading Commission (“CFTC”), that does not alleviate the need for appropriate due diligence to understand the risks of, and evaluate the disclosure associated with, a particular program. For a more in-depth discussion of the importance of due diligence in connection with these types of programs, please review our memorandum on the subject. Because commodity pools operate under the intersection of regulation by the CFTC and the Securities and Exchange Commission, due diligence of these products requires knowledge of both regulatory regimes. Our review of a commodity pool includes:

• Review of the relevant commodity trading advisor’s prior performance;
• Analysis of infrastructure for holding capital (margin accounts, cash management, etc.) and internal controls (separation of duties and control of funds);
• In the case of a third-party commodity trading advisor, analysis of manager’s due diligence and ongoing monitoring of the commodity trading advisor’s performance;
• Review of National Futures Association regulatory records on relevant parties;
• Reference calls to vendors, service providers and other industry contacts;
• A visit to the office of the sponsor and/or commodity trading advisor to observe operations and meet with management; and
• Review of all relevant operative legal documents.

Using the data gathered in the review process, we are able to provide detailed analysis of the program, including:

• Our evaluation of offering document disclosure based on our review of the items listed above;
• Identification of program strengths and weaknesses as compared to other similar programs; and
• A highlight of any unusual or particularly favorable or unfavorable terms of the program.