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Castle Hall Chris Addy

Castle Hall expands OpsMonitor with financial statement and ADV review services

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Due diligence company Castle Hall Alternatives has expanded its OpsMonitor due diligence monitoring platform with a range of new features, accessed through the firm’s DueDiligenceProfessional online app, include detailed financial statement and ADV reviews, dashboards and analytics.

“Diligence monitoring is the foundation of any effective due diligence program,” says Chris Addy (pictured), Castle Hall’s president and CEO. “However, many aspects of manager monitoring are challenging to implement. The financial statement review process, for example, is time compressed, the workload can be voluminous, and spreadsheets are inflexible and cumbersome as reporting tools. Above all, how does the diligence team validate that 80 per cent of funds that have no financial reporting issues – and then target the 20 per cent where diligence issues may be raised?”
 
For the year ending 31 December 2015, Castle Hall reviewed more than 1,500 financial statements, supporting the due diligence workflows of investors including sovereign wealth funds, pension funds and fund of funds. For the 31 December, 2016 data period, Castle Hall has expanded OpsMonitor to include additional financial reporting analytics, including visualisations of portfolio wide expense ratios and Level 1/2/3 valuation exposures.
 
“Using an institutional due diligence platform – rather than manual, offline spreadsheets – makes the entire process vastly more effective,” says Addy. “OpsMonitor allows Castle Hall to capture multiple years of comparative financial statement information, helps analyse trends, and uses financial statement data to validate manager representations. For example, if a manager claims a fund is ‘buy and hold’, we would not expect portfolio turnover (purchases of securities divided by average net assets) to be 12, suggesting the portfolio turns over every month.”
 
OpsMonitor Form ADV analysis has also been enhanced for the 2017 monitoring season.
 
“The form ADV is a key regulatory document. Many investment managers submit their annual ADV update at the same time of the year as their financial statements. This creates a similar resourcing and bandwidth challenge for investors in their diligence oversight of their external manager allocations,” says Geoff Appleby, Castle Hall’s head of operations.
 
“It is possible to data mine SEC information, but purely ‘tech’ solutions raise as many questions as they solve,” Appleby adds. “A list that identifies changes to disclosure language across tens – or hundreds – of external managers is helpful, but does not resolve whether changes are positive, negative or neutral with respect to external manager risk. For 2017, OpsMonitor presents a dashboard heatmap with green, yellow and red flags prepared by our analyst team who review ADV updates and manually calibrate the significance of changes. Issues covered include increase / decrease in regulatory assets under management, new and updated disciplinary disclosures, changes in private fund service providers, and changes to the ADV Part II document.”
 
Allocators may also elect to unbundle Castle Hall’s OpsMonitor due diligence services and access financial statement reviews of ADV analysis on a standalone basis.

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