Our due diligence processes can be categorized as initial due diligence – when a product is first offered – and ongoing due diligence – monitoring a program during its offering period.
Our Initial Due Diligence Investigation – Sponsor, Structure, Assets
The initial review process covers the following:
Sponsor. The focus of a sponsor review is to analyze the background and resources of the sponsor and determine any potential problem areas. This part of the process includes:
- Analysis of financial condition and resources;
- Background and reference checks on principals and key executives;
- Review of litigation and regulatory history;
- Review of legal ownership and control, identification of key affiliates;
- Testing and analysis of track record;
- Review of operational policies, procedures and internal controls, and service provider relationships; and
- On-site interviews with management.
Structure. Our focus on structure is twofold - we review (i) key legal documents with an eye toward evaluating the offering structure from an investor perspective, and (ii) offering documents to evaluate the completeness and accuracy of offering disclosure. This part of the process includes:
- Detailed review and analysis of offering document disclosure including the testing of factual information against source data;
- Analysis of key legal documents to determine whether the offering is structured appropriately; and
- Identification of terms that may be out-of-market or not investor friendly.
Strategy and Assets. The core of any investment is the underlying strategy and assets. Our strategy review is tailored to the asset class and may include:
- Evaluation of overall strategy in light of the macro environment;
- Current environment specifically as it relates to asset class;
- Assessment of management experience, policies and procedures relating to implementation of strategy;
- Review of acquisition and disposition documentation;
- Detailed analysis of underwriting and financial models to test accuracy and reasonableness; and
- Examination of portfolio and asset management procedures and reporting.
The result of the initial review process is a comprehensive confidential report for our clients summarizing our due diligence procedures and highlighting any matters of concern. In addition, we maintain a detailed due diligence file that is available to clients upon request.
Ongoing Due Diligence
After an initial review is completed, programs may enter our ongoing due diligence monitoring process. Our firm pioneered the concept of ongoing due diligence for non-traded REITs and is now performing similar services for non-traded BDCs, closed-end alternative investment companies and other alternative investments. Our ongoing review process consists of the following:
- Review SEC filings;
- Conduct litigation searches on key entities and individuals;
- Obtain questionnaires and certifications from management;
- Review current portfolio data and financial model;
- Conduct quarterly management calls; and
- Prepare a quarterly in-depth report to clients that addresses (i) portfolio composition and performance, (ii) distribution coverage and sustainability, (iii) financial model, (iv) legal and regulatory matters, and (v) other significant developments.