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As the alternative asset industry has grown and matured, the discipline of operational due diligence (“ODD”) has become more prominent. Alternative asset investors no longer make decisions based on investment performance alone: allocators are focused equally on the risk of operational failure — be it through honest error or, in the worst case, through dishonesty and fraud.

Against this background, ODD, often an optional luxury before 2008, has become a mandatory component of alternative asset investing. Hedge funds and private equity managers are no longer “different”, and institutional investors, often subject to fiduciary obligations, cannot accept lower operational standards simply because they are allocating to an alternative manager. As a result, it is becoming a baseline assumption that an alternative asset manager will match the operating standards and mitigate business risks in the same way as established, long-only money managers. ODD is the tool deployed by investors to ensure that alternative investment managers meet these evolving and more demanding requirements.

To download a copy of the paper, please go to the White Paper section.

We would like to end the year with another white paper while reflecting on some recent news about an embezzlement case and other examples reviewed by SwissAnalytics historically. All of them suggest to give business risks appropriate consideration by looking into the financial viability of the firm, staffing and compensation, the compliance function, the firm’s and its employees’ backgrounds, and asset transfer controls.

To download a copy of the paper, please go to the White Paper section.

Castle Hall Alternatives, a leading provider of operational due diligence to global investors, today announced a strategic partnership with SwissAnalytics, based in Zurich, Switzerland. Castle Hall and SwissAnalytics will work together to extend the reach of the OpsDiligence online diligence platform, enhancing both diligence coverage and client service across key European and North American markets.

Castle Hall, founded in 2007, is a leading specialist in operational due diligence across hedge funds, private equity and long only vehicles, having completed operational diligence on more than 1500 fund entities. “We’re delighted to partner with Castle Hall” said Christian Nauer, CEO of Swiss Analytics. “SwissAnalytics and Castle Hall have, since inception, both adopted an identical business model, orientated around client service, independence of opinion, and lack of conflicts of interest. Both our firms believe that, to be effective, a diligence provider should only service the buy side investor community, and that the provision of objective, unbiased and impactful due diligence research should be segregated from the broader, advocacy role of an investment advisor”.

Chris Addy, Castle Hall’s CEO, said “Christian and his team bring new resources and new capabilities to Castle Hall, and we look forward to our collaboration to extend our services with respect to European funds and European investors. Equally, SwissAnalytics clients will now have access to the coverage and functionality of the OpsDiligence platform and will profit from the proximity of Castle Hall to investment managers in North America.”

SwissAnalytics is also recognized for the quality of their quantitative, analytical research. “We will be working to add SwissAnalytics’ quantitative tools to our diligence process, which help review fund returns for signs of abberational performance” said Anne Coady, Managing Director at Castle Hall. “Sometimes one of the best signals that a fund may be operationally deficient is a performance track record which is actually too good”.

Looking forward, SwissAnalytics and Castle Hall will continue to expand their coverage of private equity, infrastructure and long only vehicles. “We are seeing a new degree of maturity towards the due diligence process adopted by investors across all asset classes” commented Nauer. “With respect to regulated structures, we have conducted detailed diligence across numerous UCITS funds, and have seen a surprising variety of structural, operational and legal risks, which should be understood, evaluated and monitored by investors.”

As we approach the holiday season it is a good time for some New Year’s resolutions. A very meaningful resolution would be to not only focus on performance but also about potential drags such as fees and expenses. As with all resolutions, however, simplifications and generalizations are rarely good advice. Assessing fees and expenses requires a differentiated approach and a fair amount of efforts.

To download a copy of the paper, please go to the White Paper section.

Christian Nauer, Partner and CEO of SwissAnalytics, has been elected Chair of the all-volunteers Advocacy Committee by the Board of CFA Society Switzerland. The Advocacy Committee takes up issues of interest to the Swiss CFA community in all relevant domains of governance and regulation. The Committee positions are grounded in the Code of Ethics and Standards of Professional Conduct of CFA Institute.

Recently, hard assets such as real estate, commodities, projects in renewable energy, or luxury goods such as art or wine enjoyed great publicity and were praised as “real” alternatives to investments in securities luring with spectacular returns and quoting favorable characteristics such as inflation protection, sustainability, stable values, low volatility and high liquidity. Unfortunately, expectations could rarely be met and investors faced significant losses as some investments even turned out to be outright fraudulent. Is the accumulation of painful events in hard assets attributable to pure coincidence? The Swiss business publication BILANZ looked into this question and asked SwissAnalytics to comment on a selection of hard assets investments. The conclusion can be found in a recently published article (Issue# 12/2013).

You may find the article here. Though please note that the article was published in German only.

Subsequent to last fall’s white paper three regulatory complaints are reviewed and discussed in more detail pointing out structures and circumstances which were instrumental in facilitating the fraud. Furthermore, they illustrate boundaries of what can be expected from a regulatory agency suggesting that an investment advisor’s registration with a regulator is no substitute for proper, pro-active due diligence.

To download a copy of the paper, please go to the White Paper section.

SwissAnalytics’ CEO Christian Nauer was invited to speak at the CALAPRS Investment Officers’ Roundtable on February 8th 2013 in San Jose, CA. Asked to introduce best practices in investment manager and service provider due diligence, Christian Nauer will be providing insight into which areas warrant particular attention and why. Furthermore, he will be introducing techniques how to address certain aspects of conducting due diligence and how to make the most out of an onsite visit. Offering ‘war stories’ he will be sharing common issues encountered and how they may be mitigated.

Separately managed accounts and managed account platforms enjoy increasing popularity among investors. While separately managed accounts have several benefits which help mitigate operational risks compared to a direct investment in an investment fund they are subject to several challenges. Managed account platforms can address some of these challenges but in some cases the term managed account platform can be misleading as some managed account platforms are more like structured products.

To download a copy of the paper, please go the White Paper section.

Christian Nauer, CEO of SwissAnalytics, and his co-panelists Ruchi Nirula, Director, Asset Management, SwissRe, and Rufus Rankin, Director of Portfolio Management, Equinox Fund Management, discussed the impacts of out- or co-sourcing due diligence to an external provider at the GAIM Ops Europe 2012 conference in Paris.
Download the paper to obtain their opinion on potential problems, merits, scope and costs of contracting an external provider to conduct due diligence.

To download a copy of the white paper, please go to the White Paper section.

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In the News

October 26, 2015
New White Paper: Operational Due Diligence 3.0

The latest white paper of our strategic partner Castle Hall Alternatives looks into how leading institutional investors are responding to a regulated and institutional alternative asset industry.

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