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Know Your Portfolio ("KYP") |
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INTRODUCTION
Potential investment partners all represent a degree of risk to your organization. Most investors conduct far more financial due diligence when deciding whether to make an investment than investigative due diligence. Focusing mostly on financial risk will not protect your organization and its investors from legal and regulatory liability relating to issues around exactly who your organization is doing business with and where and how funds are invested or the reputational damage that can result from doing business in the wrong place or with the wrong people. Daylight’s Know Your Portfolio Services (“KYP”) can help you manage these risks by analyzing your investments and finding out where companies are doing business, and whether or not it appears such business relates to terrorism, sanctioned countries, individuals or entities, fraudsters or other unsavory characters.
THE NEED TO KNOW YOUR PORTFOLIO
Investment strategies such as “ethical investing” and “terror free investing” as well as rules promulgated by the Office of Foreign Assets Control (“OFAC”) all have one thing in common – they restrict the types of investments that organizations such as pension funds, mutual funds, university endowments and charitable organizations can make, with whom they can invest and the geographic location of investments. Though not a direct restriction on an investment decision, hedge, venture capital and private equity funds would no doubt think twice if adverse information regarding the character, integrity and present or past conduct of a potential investment partner was found.
How would you explain to regulators, lawmakers or shareholders that your organization (i) is conducting business with individuals or entities in violation of the OFAC rules; or (ii) is investing in companies located in Darfur while your fund’s prospectus prohibits investing in countries where human rights abuses are occurring; or (iii) invested in a company with leadership who’s integrity was in question?
HOW DAYLIGHT CAN HELP
Daylight can help your organization mitigate these risks through development and implementation of a KYP program that includes:
- Data mining – Utilizing transactional data mining and analytics to efficiently analyze existing investment portfolio for links to high risk or sanctioned country geographies; industry or product categories that are inconsistent with ethical investing or terror free investment strategy or undisclosed foreign government ownership.
- Risk ranking of investment portfolio – One of the key outputs resulting from the use of data mining is the development of a “heat map” identifying the high, elevated and low compliance risk portions of the portfolio and a recommended approach for each level of risk designation.
- Investigative due diligence – In depth background investigations of the entities and key personnel comprising direct investments and of both the owners and investors of investment intermediaries or partners such as hedge funds and private equity firms.
- Compliance program assessments – Using current regulatory requirements and industry best practices, reviewing current policies, procedures and internal controls that are used to pre-screen potential investments and provide suggested enhancements.
- Ongoing monitoring – Development and implementation of an ongoing investment monitoring process to screen potential investments against certain risk parameters and restrictions.
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