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Covid-19 Due Diligence

How Castle Hall can help

 

 

Meeting an Unprecedented Challenge

To state the obvious, the Covid-19 novel coronavirus has rapidly become the most serious global public health crisis since the Spanish Flu epidemic of 1918, more than a century ago.

What should investors and asset managers do in such a rapidly changing crisis situation? Clearly, due diligence as usual is not on the agenda. Equally, investors are typically fiduciaries and are often regulated. Putting all diligence on hold is, therefore, not an option – clients, plan members and beneficiaries expect asset owners and advisors to manage risks and protect their interests, especially at a time of crisis.

Castle Hall has moved quickly to provide new sources of information on Covid and build new diligence solutions - including our FREE DiligenceExchange Covid-19 Status Report.

How Castle Hall Can Help - Covid-19 Due Diligence

Above all, we’re all in this together: this is a time when everyone in the asset management community can collaborate to share ideas and best practices. Working together, we can help protect our colleagues and their families, and support our businesses across the industry.

The Castle Hall Team.

1

COVID-19 DILIGENCE PLAN

2

FREE LEVEL 1 COVID-19 STATUS REPORT

3

LEVEL 2 COVID-19 DILIGENCE REPORT

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USE DILIGENCEHUB TO MONITOR COVID-19

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SERVICE PROVIDER COVID-19 PROFILES

Castle Hall recommends that investors create a Covid-19 Diligence Plan – a “CDP”. A CDP creates a framework for a risk based, consistent and evidenced process to monitor capital allocated to third party asset managers.

Importantly, if you are a fiduciary or are regulated, diligence should be evidenced and consistent. While phone calls with managers can gather important information, are the results of those calls actually written up, and is data gathered in verbal conversations consistent?

We recommend a five step process: 

  1. Establish the framework for your CDP 
  2. Baseline Diligence (Level 1): Covid-19 Status Report 
  3. Deeper Dive Due Diligence (Level 2): Covid-19 Review 
  4. Establish a Covid-19 manager monitoring program 
  5. Expand your CDP to consider next level risks 

Download Establishing Your CDP – Covid-19 Diligence Plan White Paper 

Download Now

Investors must gather sufficient, timely Covid-19 information on all external managers in a portfolio, across all asset classes. Completeness of diligence is critical – especially if acting as a fiduciary, investors should gather (and document) baseline information on ALL managers to whom capital is deployed.

To help with risk assessment and initial data gathering, Castle Hall has developed our free DiligenceExchange Covid-19 Status Report. The aim is to create a rapid turnaround document which can be quickly gathered across all managers. This quick response data can then be combined to create a risk heatmap. Questions include:

  1. What percentage of manager staff are working from home?
  2. To what extent have manager operational procedures been impacted since March 15, 2020? (Not impacted / Minor Impact / Significantly Impacted)
    a. Trading
    b. Confirmation / Middle Office
    c. Portfolio reconciliation / Back Office
    d. Cash payments
    e. Portfolio valuation procedures
  3. Has the manager contacted service providers to determine their current status of Covid-19 preparation and exposure? (Contacted with No Impact / Contacted with Minor Impact / Contacted with Significant Impact / Not Contacted / Not Applicable)
    1. Prime Broker
    2. Custodian
    3. Fund Administrator
    4. Auditor
    5. Technology Consultant
    6. Compliance Consultant
    7. Fund Directors
  4. Could the manager continue to trade in the event that the fund administrator was unable to provide daily accounting, reconciliation and related services
  5. Does the manager expect any delay in the issuance of the March 31, 2020 NAV?
  6. Has the manager had a cyber security incident since March 15, 2020?
  7. How long does the manager expect to be impacted by the Covid-19 pandemic?

Please contact Castle Hall to learn more about the DiligenceExchange Status Report and how it can help your diligence group, investment team and executive management.

Given the materiality of Covid-19, investors will wish to conduct deeper dive due diligence on higher risk managers. These will be managers with higher dollar allocations, who are smaller firms with fewer resources, or who operate with strategies which are more exposed to the market impacts of Covid-19. More detailed due diligence will also be necessary as an escalation following the Level 1 Status Report – which managers, if any, have reported significant difficulties in the roll out of their BCP plan in response to Covid-19?

Castle Hall’s Level 2 Covid-19 Diligence Report covers key risk areas:

  1. Business
  2. Key Personnel
  3. Business Continuity
  4. Cybersecurity
  5. Accounting & Operational Controls
  6. Valuation Controls
  7. Financing & Custody
  8. Service Providers
  9. Human Resources

Contact Castle Hall to learn more about this key diligence tool as investors evaluate their key manager relationships.

Use DiligenceExpress and DiligenceHub to establish a baseline of diligence information across all asset managers and monitor critical updates. 

Explore the Manager Form ADV Filing to:

  • Review Manager Office Locations that may be impacted by the outbreak
  • Assess AUM scale and human resource attributes

Access the Fund Form ADV Filing to:

  • Identify and catalogue key Service Providers
  • Consider any impact the pandemic may have caused

We recommend that you follow all US SEC Registered managers and any fund filings to receive notifications of amendments to these regulatory filings.

Leverage DiligenceHub Analytics to save time and focus your efforts by quickly scanning for key features across your portfolio.

Castle Hall's Reputational Diligence service expands upon DiligenceExpress free monitoring of regulatory filings to incorporate streamlined and efficient daily media, sanctions and watchlist monitoring.  Contact us for more information on this cost-effective and time-saving solution to rounding out your Covid-19 Diligence Program.

Watch this video for an overview of how DiligenceExpress can be used to review and monitor regulatory filing information as part of your overall diligence and risk management activities.

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For OpsMonitor clients, Castle Hall has prepared Covid-19 profiles on more than 50 administration companies and will shortly expand to prime brokers, banks, directorship companies and other service providers.
 
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OpsReview

Onsite Diligence

OpsReview is Castle Hall’s flagship onsite due diligence process, delivering a comprehensive diligence assessment of each manager and fund. OpsReview provides detailed due diligence coverage for material manager allocations, higher risk managers and more complex asset classes.

  • OpsData - detailed data pack, including all Castle Hall’s “trust but verify” checks.
  • Onsite interview to evaluate the manager’s control environment, systems and culture face-to-face
  • Background checks conducted by Castle Hall's investigative diligence partner, Exiger
  • Administrator due diligence
  • Comprehensive due diligence report , including detailed narrative of the business risk of the manager, legal risk of the fund, and operational risk of the control environment. Castle Hall considers 20 risk areas within every OpsReview engagement.
  • Expanded analytics factors - more than 300 data points are captured and can then be analyzed at the fund or portfolio wide level. How many of your managers have not formed a valuation committee, or have a valuation committee which does not meet as of the date of each net asset calculation? 
  • Assessment, including strengths and risks and Castle Hall’s overall diligence opinion, expressed as “accept”, “watch list” or “reject”.

Total Diligence

Enhanced Oversight

Due diligence is no longer "just" about ODD. Leveraging our decade plus experience and the DiligenceHub tech platform, Castle Hall helps our clients expand their oversight of external managers beyond traditional operational metrics.

CyberSecurityDiligence - expanded due diligence as asset manager cybersecurity policies and procedures.

ESGDiligence - considering ESG risks at the management company and strategy level.

RiskDiligence - review of risk management procedures and analysis of risk controls.

Total Diligence provides enriched oversight across each manager and fund in a portfolio.

Learn More About Covid-19 Due Diligence

Contact us to learn more about how Castle Hall can help enhance your operational due diligence program.

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