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Best Practices in Due Diligence

An Industry Perspective

MR. MIKE REFOJO:  Good afternoon and good morning to everybody, and thanks for joining us today on the Due Diligence Best Practices webinar.  My name's Mike REFOJO and I'm the vice president and head of Global Sales for Advent Tamale Software.
 
I'm pleased today to be joined by Mason Snyder and Patty Watters of Catalina Partners.  Patty and Mason are recognized leaders in the Alternative Investment industry, specializing in operations and regulatory compliance.  Catalina Partners provides a full array of business risk advisory services and works with many institutional investors including Fund of Funds, Endowments, Foundations, and Pension Plans, to help them with their manager due diligence efforts.
 
The call today will last approximately 50 minutes, and we'll start with Patty and Mason spending the next 25 minutes or so walking through a high-level overview of some of the industry best practices that help define a comprehensive manager due diligence program.  At the end of their discussion, I'll walk you through a quick demonstration of the Tamale research management solution to demonstrate how a technology solution can help to facilitate a more comprehensive and structured due diligence process.
 
With that, I'm going to hand it off to Patty and Mason.

MR. MASON SNYDER:  Thank you, Mike.  Today, my partner and I will share with you Catalina Partners' road tested approach to due diligence based on best practices.  Two points I want to make first.  One is that this presentation is geared towards institutional investors versus fund managers; however, I suspect there may be some fund managers on the call here, and they can take this from a perspective of how due diligence will be performed on them.  The second point I want to make is that this is focused on business risk versus investment performance risk.  And by business risk, we mean not only operational risk, which includes valuation, but also compliance, counterparty, leverage and liquidity, and fraud.
 
Today, we'll emphasize approach, depth, and frequency as the key drivers to successful business best practice due diligence.  We'll emphasize that the depth of the analysis that relies on tangible evidence, and we'll discuss how you determine the frequency with which you monitor and perform risk-based assessments.
 
The financial market's collapse exposed massive amounts of business risk that were hidden or unknown to most investors.  Madoff's ponzi scheme operation was finally exposed for the fraud that it was.  The chaos and hardship that followed also served as a wakeup call to investors.  Business risk must be understood and actively managed.
 
The three critical factors to determining effectiveness and value in due diligence are approach, depth, and frequency.  In a few minutes, we'll discuss each one of these.  We also want to point out that we utilize the standards recognized in the industry to guide our approach.  The four listed here--president's working group, managed funds association, - - , and the hedge fund standards board.
 
So for the remainder of the presentation, we will describe the mostly empirical approach to due diligence from an institutional investors perspective.  But before we do, let's touch on the softer qualities of effective due diligence.  First, it's important to define your mission; second, lay ground rules; third, establish a team, either part-time or full-time, who can be dedicated to the due diligence efforts.  This is important not only for consistency, but also for a basis for comparison.
 
With that, I'm passing it to my partner Patty to discuss the approach.

MS. PATTY WATTERS, PHD:  Thanks, Mason.  Starting off with the general guidelines of the approach, we want to point out that one size does not fit all here.  As you can see, you have to have a custom design for your due diligence program that's based on the size and the composition of the investments in your alternative portfolio.  For example, I'm sure you'll agree that risk exposures differ for different strategies.  Liquidity, leverage, OTC derivatives, - - --are these things that you need to be concerned with and to what extent?
 
Your own due diligence program should be supported with written policies and procedures so that they're consistent and they're replicable, so if the key people in the organization leave, there are other people who could simply follow those rules and policies.  Make sure that the risk management approach that you have is integrated throughout your own organization and that you can look for the same clues in other organizations.  As Mason pointed out, we're going far beyond just the back office due diligence review; we're going into the middle, and sometimes into the front offices, to make sure that this business is sustainable.
 
When you complete your functional drilldown, you want to be sure that the policies that you're reading that may have been written by somebody else at the top levels of the organizations are translated into process flows.  Are your fund documents consistent with the internal policies, procedures, and regulations?  And are they consistently applied?  As we pointed out before, we're going far beyond back office into an enterprise-wide review of the sustainability of this business.  Starting at the top, this is what the SEC refers to as "Tone at the Top," it's integrated and consistent throughout the organization.
 
Are the managers, the key persons who are making decisions, competent and have ethical standards that you can trust?  This may require some background checks through professional organizations.  Make sure that you know who is making those decisions and how the decisions are being made, and that their compliance programs are internally consistent and also meet the requirements of the regulators.

MR. SNYDER:  Here, we have a sample approach to monitoring valuation and operational risk of funds in a portfolio.  First, a plan is developed to define what is being measured and how often.  This can change over time based on perceived changes and risk.  Next are the reviews, the valuation review and the operational review, which should be carried out independently.  Last is reporting findings and acting on them through revisions to the plan.  So typically, we see quarterly reports being provided to the investment committee, and then the investment committee reacts to those reports and makes key decisions.  For example, if there are some findings that aren't supporting what was previously understood about a manager's operations.  There may be a decision to communicate directly with the fund about adjusting that, or ultimately, there could be a decision to redeem from the fund.
 
So it's a circular process that needs to continue based on the cycle that's determined in the upfront plan.
MS. WATTERS:  One of the important things that have changed in our industry is getting below the surface to actually seek evidence and to demonstrate compliance, so your role as an investor doing due diligence on an investment manager is to seek that demonstration or corroboration--reconciliations that show that the firm is actually doing what it says it's doing.  You'll want to look for some kind of outside verification wherever you can, some objective source such as a benchmark, a custodian, or a prime broker or lender that can confirm that the firm is operating efficiently and effectively.
 
Before you do your due diligence visit onsite, you want to collect a lot of information.  You'll want to read the fund documents, policies and procedures that are going to be shared with you, primarily a valuation or allocation policy.  Look at the most current due diligence questionnaire.  Seek independent verification from the service providers.  Look at the agreements that the investment manager has with those providers.  Then, when you get onsite, you're prepared.  You want to be sure that the people that are working in the organization understand the processes and that they follow them consistently.  You want to be sure that the controls are effective in detecting errors, preventing errors, and correcting errors.
 
You may not have been provided all the documents that you wanted to review prior to your visit.  For example, you may be restricted to looking at side letters or compliance manuals onsite.  Do some testing.  Use some audit-like techniques to confirm that the daily valuations are reconciled with the administrator and the manager, and that there are appropriate signoffs.  Check that the allocations across multiple funds are done according to the rules and the policies of the organization.
 
You'll find that you can't do everything all the time, so focus on the areas that are important for your investments and also for the particular strategy that you're looking at.  Find out if the organization is valuing the investments appropriately.  Are they using fair value techniques?  How are they applying FAS 157, Level 1, 2, and 3 valuations for the appropriate standards in the international community?
 
Lastly, look at some of the more timely issues.  How does the organization deal with stresses?  For example, what happens when there are extensive redemptions?  Or what happens when the credit markets tighten up?  Find out how they deal with those stresses.
MR. SNYDER:  Due diligence reviews should be thoroughly documented from data collections and analysis to final report.  Quantify the findings wherever possible, even if they require judgment.  For example, on the transaction-testing document on the left shown here, we tracked completion and follow-up of the test while also assigning a value to the results.  We used the green-yellow-red standard, green indicating that the test was satisfied or met the standard, yellow that there was only partial agreement with the standard, and red either insufficient or sometimes nonexistent.
 
You also see here a manager scorecard, which is developed for each of seven major categories that are encompassed within the business diligence review with an assignment of a value for each one, and an indication of key considerations for those that were marked yellow or red.  And finally, a written summary report--generally, these are three to six pages in length.  They identify the highlights of the review, and in particular, key areas of concern and issues and follow-up items.

MS. WATTERS:  Well, you might wonder how often do you need this kind of effort.  Unfortunately, your job doesn't end with the initial one-time review.  We have a dynamic environment in our industry, and the risks that you may have identified are going to change from time to time.  Catalina Partners recommends a risk-based approach to determining how often you do your ongoing due diligence.  Where are the risks?  That's probably something that you've hopefully identified during your initial view; but again, you need to consider the fact that your environment is going to change from time to time.
 
You want to follow up and make sure that any improvement areas or corrections were identified, that those corrective actions are effective.  And then lastly, what's the materiality of the risk that you're looking at?  At Catalina Partners, we use two parameters for identifying risk.  Number 1, what's the impact on the organization or the portfolio of a particular event.  And Number 2, what's the frequency of probability of that event happening?  For example, if you have a high impact and a high probability of an event happening, then that's a high risk that you'd want to look at much more often than you would if you have low impact and low probability.
 
During your initial due diligence review, or maybe just because you have some issues of concern for you as an organization, you'll want to have red flags identified that require a revisit.  So if market conditions change, for example if you have a credit manager and the credit spreads change, you'll want to see how that manager is reacting.  Or are there changes in the management?  Were there changes in the service providers?  You'll want to know why that happened and if there are effective changes in place.
 
When you do your samples to these audit-like techniques, be sure that they're statistically sound and supportable.  Again, going back to the risk and materiality issues, be sure you have a correct and appropriate sample size.  How often do you come back and how often do you look at things?  Is it going to be on a random basis or something like a more systematic basis where you look at, for example, the ten largest holdings in the portfolio, or maybe some combination of those two techniques?

MR. SNYDER:  Before deploying any due diligence monitoring program, a risk-based approach must be determined and then applied consistently.  Best practices suggest that three methods are most commonly used: risk profiling, which is using knowledge to determine the areas of greater risk, and then returning to the monitoring of those areas more frequently.  Second, a rotation approach, which typically says you break your due diligence reviews into groups of 12, you look at one 12 each month, and by the end of the year, you've had a review of each one.  And the third is a testing or random sampling approach often used on audits.  Also, there can be a combination approach used, for example, a combination of rotation and testing.  So you'd do a rotation, but you don't necessarily cover 100%; you cover 80%.
 
But what's most important is that you select a method and you stick to it.  That way, you have the consistent results that will enable you to evaluate the business risk associated with the portfolio.
 
So in conclusion, we have covered a handful of important points for designing and implementing a due diligence program.  Important to emphasize again are the fact and evidence-based approach, looking at the risks associated with ongoing portfolios and ongoing monitoring, and consistently applying that approach.  Also as mentioned earlier, it's important to dedicate the same resources so that they can benefit from the comparisons of one fund to another.
 
Documentation is key.  It should include not only the data collection analysis and reports that are prepared for each review, but also the results of third-party verifications and analysis around trends and root causes.  So as the person responsible for implementing due diligence or due diligence program, your challenge is to deliver an accurate analysis so that chief investment officers can make sound and informed decisions.  By following the best practices and principles described here, both investors and managers will be well served.
 
With that, I'll pass it back to Mike.

MR. REFOJO:  Thanks, Patty and Mason.  Before I jump into the product demonstrate, I'm going to run through a few slides to provide a quick background on Tamale and the Tamale value proposition, and talk a little bit about why firms are adopting products like Tamale.
 
So we launched Tamale in 2004, and we were the first to market with the concept of a research management solution.  You can see some of the stats; we have over 150 clients across eight countries, over 3,000 active users, and we point to that as our biggest competitive advantage.  Basically, it's the 3,000 institutional investors that define the key requirements that we are constantly building into the product and helping us understand what use cases and workflows we need to support.  The most important lesson that we've learned is that information overload is a very common problem faced by almost every research driven investment organization, but every firm is a bit unique in some way, and our job is to make sure that we can leverage our experience to help firms implement and integrate the Tamale solution strategically.
 
So just a few quick words on the client profile.  You can see a list here.  Basically, we're working with research driven investment organizations--hedge funds, asset managers, fund of funds, endowment foundations, pension plans, sovereign wealth funds, investment consulting firms, family offices, and wealth managers.  The common theme across all of these different types of firms is that they're research driven and they depend on their research to drive their investment decision-making process.  
 
The other common theme that we see is that they're all looking for a better way to leverage and manage their research efforts.  In terms of our experience with a multi-manager market segment, it's a bit more recent, but the demand for solutions like Tamale is increasing substantially, and we see that the increase in the demand is really being driven by the need to improve investor confidence and to demonstrate to their investors a commitment to a best practice approach.
 
Okay, so why are firms like these adopting research management?  Probably the easiest way to frame this is in terms of the problems that are being faced by these investment organizations.  The flow of information is overwhelming.  It's coming from multiple sources in multiple formats, and the volume is constantly increasing.  Important information is decentralized and disorganized.  Most of the investment organizations that we walk into today are using a combination of their inbox, network folders, hard copies, and none of the information is really organized well or centralized to be able to access.  As a result, transparency and access to the information is very limited.
 
Too much time is spent trying to find information.  We've just concluded a survey with the help of pension and investments, and we're putting together a whitepaper with the results of that survey.  But one key data point that we took away from that survey is that people are spending way too much time looking for information.  You can see this one stat; 37% of the respondents to the survey spend one to two hours per day searching for information--obviously, too much time looking for information; too little time leveraging the information.
 
The other common problem that we see is due diligence procedures are nonstandardized and inconsistent.  In other words, there's no process or approach that can be repeated on a consistent basis to really support and backup the due diligence efforts.  Collaboration tends to be difficult, institutional memory is lost, and the one point that we constantly emphasize to firms that we speak with is the problem is not going away.  Ignoring it is not the solution.  You really need to think about how you can address all of these problems to provide a more consistent and efficient approach.
 
Okay, so with that, I'm going to jump over to the product and walk you through a quick high-level product demonstration of Tamale just to show you how a technology solution like Tamale can help to facilitate a more structured and consistent approach to due diligence.  The demo that I'm going to walk through is built around a multi-manager investment process.  Obviously, the demonstration could be geared toward a direct investment approach, but for the purposes of today's presentation, we're going to focus on the multi-manager investment process.
 
So a few key themes to think about as we're going through the demo.  When we think of Tamale, what we really think of are the core use cases that make up the day in the life of an investment professional--an analyst, a portfolio manager, a director of research--anyone who's really involved in the investment process.  And we focus on core use cases and build features to support those core use cases.  One key ingredient to a successful product and implementation of a product like Tamale is ease of use.  We need to make sure the product is very robust, but we also have to make sure that it integrates very seamlessly into your current workflow and that it's easy to use, because at the end of the day, it really comes down to adoption.  And if people are using Tamale, obviously it becomes much more strategic for the firm.
 
The other key theme to keep in mind as we walk through the demo is configurability.  Tamale's a very configurable product, and every investment organization, as I mentioned before, that we work with is unique in some way.  There's a lot of common themes that we see across these investment organizations, but every firm's a little bit unique in terms of their culture, in terms of how they collaborate, how they want to present information, and most importantly, how formal is their process today.  Or how informal is their process today, and how formal do they want it to become?  So what we do when we work with investment organization is try to define some basic best practices to get them started, and then configure the solution on an ongoing basis to help them define best practices that work best with their investment organization.
 
Okay, so with that, let's just walk through some of the key use cases.  And again, this is at a high level just to give you a flavor for the product.  So we're focused on here, an entity, Mill Valley Investments; it's a hypothetical fund manager.  And you can see below that there are attributes or characteristics that are associated with that fund manager.  You can also see where my mouse is hovering that I'm pointing to the research view; this is all of our research on this particular manager, Mill Valley Investments.  So at a high level, one of the key benefits that you gain immediately from using a product like Tamale is that your information and your research now is centralized.  It's aggregated onto one platform.
 
Typically, the way information gets into Tamale is that an investment professional makes an active decision to save information to Tamale, and the information that's saved can be anything from notes from a meeting, performance documents, subscription documents, anything that's relevant to the investment process.  Now, one of the things that we realize is that on an ongoing basis, you're constantly initiating coverage for new managers.  In this example, we have Mill Valley Investments as a manager that we're potentially investing in, but we also realize that you initiate coverage on new managers.
 
So we need to make it easy to set up new managers in the system.  And one way that we can do that is just by hitting the New Entity button, and we're going to set up a new fund.  And you can see that when I type in entity type fund, some of these fields, characteristics, attributes, automatically populate in the deposit dialogue.  These are obviously configured and defined by the investment firm that we're working with, so these are examples.  But you can see now I can go in here and I can define things like asset class, AUM range, strategy, and I don't have to fill in all of these.  But you can see as I fill these in, what I'm doing is basically providing a consistent framework for capturing the information around the managers that we're doing due diligence on.
 
The other thing that I would do here is define the fund name.  So if I want to, I can set it up as a standard name as well as a nickname for the fund, if we have one, and I hit Okay.  By doing that--well, we've already set that one up.  By doing that, what I'm doing is establishing the fund in the Tamale database, and probably more importantly, what I'm doing is creating a more consistent approach to capturing key characteristics or attributes around that fund manager.  So now, if I go into Tamale, I can type in "test funds," and I can see that the fund is created.  The characteristics that we captured are now associated with that fund.  And I can also see that the first note or research item was captured on this particular fund, which are the key characteristics that we're tracking on this manager.
 
Now, another key use case is, going forward,--we're just going to go back to Mill Valley--I may want to maintain or edit these characteristics because they change over time.  So by leveraging that same template, for example, I may want to say that the absence under management range changed, or that the investment status changed, to inactive.  I can hit Save, and now that save gets changed to Tamale, and a new fund details note gets created in the research view to document that change.  And you can see also that the attribute and the relationship to the fund has been changed to inactive.
 
So that's just a quick demonstration of how you can maintain the key characteristics on the managers that you're doing due diligence on, and also initiate coverage on new managers and doing it in a way that's a bit more structured and consistent on a going-forward basis.
 
Okay, now let's talk about contacts.  We know the contacts are a very important part of the investment process.  You can see that one of the key benefits of Tamale is that you can associate people with entities.  So in this example, I'm looking at Mill Valley Investments, and I can see the people that I'm speaking with about Mill Valley, and I can define them based on their role--portfolio manager, key analyst, investor relations, investment coverage.  All of these relationship types are defined by the firms that we're working with.
 
The other things that are important with respect to contacts is just like I can focus on a manager, Mill Valley Investments, I can also focus on a person.  I can double-click on Andrea Young, and when I focus on Andrea Young, now what I'm looking at in the research view is all of the research that's been saved to Tamale and attributed to Andrea Young as a source.  So one of the key benefits is creating better institutional memory, remembering who you speak to about what, and being able to track those conversations over time.  It tends to add significant value to firms that are using Tamale.
 
Now, we're going to talk about the concept of entries.  As I said before, most often, information is deposited to Tamale and it's an active decision made by an investment professional who's involved in the investment process.  The value there is that it becomes a filtered database.  In most of the research that's saved to Tamale, it's saved because the user has made the decision that it's relevant and important to the investment process.  Now what we recognize is that there are two ways of potentially saving information.  One is what we would call unstructured.  Unstructured means that, as an investment professional in a moment in time, I want to save some key data points from a phone conversation or I want to save an email, for example.  The other type of entry would be a more structured entry, and we'll provide examples of both.  The idea of a more structured entry points back to the need or the ability to provide a more consistent approach to save important information.
 
So first, I'm going to talk about unstructured.  Again, a simple example could be I'm on the phone with Andrea Young, she's the portfolio manager for Mill Valley Investments, and I just want to capture some key points from the conversation.  All I have to do is hit New Note; this is the standard deposit dialogue that comes up.  I can define it as a call and these note types or activity types can be defined at the firm level.  It's going to default to today as the date.  I can add a sentiment,--positive, neutral, or negative--and I can even create a priority ranking.  So to the extent that this call created some actionable event, I can define it and distinguish it based on this priority ranking.  And I hit deposit and it gets saved to Tamale.
 
Everything that gets saved is saved in real-time.  So you can see it shows up at the top of the research view.  And in the preview pane, it's viewable and I can capture all of the Meta data surrounding that piece of research.  So a very simple use case, but you can see that that's something that could be repeated many times during the day.  And instead of the information residing on a note pad or potentially in an email, it's now centralized and can be viewed by everybody in the firm.
 
The other standard use case that we see often is the idea of saving an email.  So in this example, here's an email that somebody sent to our inbox.  And you can see that we have Tamale plug-ins in the Outlook toolbar, so I can save the entire email with the attachment, I can highlight a portion of the email and just save the highlighted portion, or I can just strip out the attachment and save the attachment.  I'm going to save the entire email with the attachment, so I hit that first button.  As the user, all I have to do is define the entity or the entities that this is about.  So this again supports a very common use case, the need to save research to multiple entities.  You can see that it automatically captures the source, it defaults to type Research Item,--I can change that if I want to--and I have the ability to change these other values if I want to.
 
The other best practice that we try to incorporate when we train users is to add an annotation.  The annotation creates a reference point and helps me remember why I saved it, and helps other people who are viewing this information potentially see how it's relevant to the investment process.  The other example that I'll just walk through quickly--again, something that used to get repeated a lot during the day because it supports a very common use case--is just the ability to highlight a portion of the email and again decide what entity that is about and save it.
 
We go back to Tamale, you'll see, here's the first email with the attachment that we saved.  The annotation is viewable, the email is previewable, the email is attached in .MSG, and the PDF document is attached in its native format.  The other thing that happened was the content of the email and the content of the PDF document are indexed and are now searchable, and we'll talk about search in a minute.  And here's the other item that we saved, which was just a clip from the email.
 
Now just to point out very quickly, we have those same plug-ins with all of the other office applications.  So not just Outlook, but Word, Excel, Adobe, Internet Explorer, PowerPoint, so any document in any format can easily be saved to Tamale.  Now, we also recognize that there are oftentimes more structured approaches to how you want to save information.  Working with multi-manager firms, a lot of the firms that we work with want to create a manager rating.  So we can create workflow off of specific activities.  So if I hit Manager Rating, just by selecting that note type, you can see that fields now appear in the deposit dialogue that basically are prompting the user to rate this manager on different levels--organization, team, process, performance, operations, risk management.  All of these different ratings are obviously defined and configured around the workflow in the investment process of the managers that we're working with, but this gives you an example of how you can create a more structured workflow in a more consistent due diligence process to help support your investment process.  And you can add an annotation.  - - visit, and you save that.  And, obviously, it gets saved in real-time.  And you can see that all of the ratings are now saved to Tamale, and it's saved as a manager rating note.  So as those manager ratings change, we can track the changes that have been captured in the database.
 
So those are some basic examples of entries.  We also recognize that certain entries need to be automated.  And I'm not going to get into a lot of the detail, but we do work with managers to automate the capture of recurring information.  So performance updates are a great example that get sent to the manager on a monthly or quarterly basis.  That information doesn't have to be self-selected and entered by a user; it can be automatically pushed into the database.
 
All right, now let's talk about finding information.  As you can imagine, the database grows pretty quickly.  A lot of people are saving information to the database, and although it's easy to switch focus from one manager to another,--I can switch focus from Mill Valley to - - Investment Management and back very easily--I don't necessarily want to have to dig through all this information to find specific data points.  So we can help filter information in a few different ways.  One is through search, and we have the idea of local search and global search.
 
Local search means that I want to search just within our research on a particular manager, Mill Valley Investments.  I can do that by just typing in a query, so I'm going to look for a person, Campbell.  And when I do that, it immediately narrows my view to three items that reference Campbell.  And here's a great example.  You can see that Campbell is highlighted in the body of the note.  There are three attachments here.  Only one of the attachments is highlighted, which means there's reference to Campbell in that document and not in the other two.  So the key benefit is getting users to the information that they need very quickly, spending less time searching for information and more time leveraging that information.
 
We also have the ability to search across the entire database through what we call global search.  I type in Campbell, and now you can see notes, documents, even events from my calendar and contacts that reference Campbell.  And it references the entity or the manager where that query is in the database.  So search obviously gets users to the information they need very quickly without having to navigate or spend a lot of time looking for the information, and it supports a very core use case.
 
We also have some basic filtering capabilities.  The research view is column-based, and users can configure the research view around the informations they're looking for, and obviously, you can do some basic filtering.  So for example, if I'm looking at Mill Valley Investments and I just want to see the manager ratings, all I have to do is one click on Type, and I can see the history of manager ratings as they've occurred over time, who has made the changes, and what changes have been made.
 
So, basic filtering, but very effective, and something that we see leveraged actively by users in Tamale.  The other concept is the concept of advanced filtering.  Advanced filtering allows me to drill through a lot of information quickly.  I'm going to point the research view to "All," so now I'm looking at the entire database.  And you can see that there's a panel here that I can bring out, Filtering, and I can set some basic parameters around the key data points that I want to filter on.  So this is basically around the concept of filtering at multiple levels.  So I can say show me any notes that are of type manager rating and manager call.  I can add a filter.  Maybe I want to just see notes that are submitted by the liquid investments team.  And you can see, as I do that, my view is narrowing to 6 of 359 items.  And I can add filters to continue to narrow the view as I need to.
 
So advanced filtering is a way of digging through a lot of information and defining filters to get to key data points very quickly, something that's very difficult to do today.
 
Okay, the next thing we're going to talk about is reporting, and there's some basic reporting capabilities and some more configured and dynamic reporting capabilities that I'll point to.  One is just the ability to create a quick tear sheet on a manager.  Today, that's difficult because, again, the information is decentralized, so it's hard to pull the information together.  In Tamale, all you have to do is hit Print and define the manager that you want to create a tear sheet on, define some basic parameters, hit Print again, and this will show up in an HTML view in a second.  So now you can see the tear sheet on Mill Valley, contacts and all the contact information, you can see the key attributes for that manager as they've been defined in the database, and all of the most recent notes based on the parameters that we've set for Mill Valley Investments.
 
It took two clicks to get this report.  Even events from the calendar can be saved or viewed.  It took two clicks to get the report, and it automates the aggregation of the key data that you need perhaps to prepare for an internal meeting, or perhaps for a meeting with this particular manager.  So that's one example of a standard report that can be leveraged effectively within Tamale.
 
The other is the concept of what we call Summary View.  What we realize is that a lot of investment professionals are going to want to aggregate key data points and specific data points on the managers that they're doing due diligence on.  So here, we're looking at Mill Valley Investments; here's all the research on Mill Valley Investments.  I want to create a manager tear sheet that basically just covers these key data points: the fund details, the investment thesis, the last note from our onsite meetings, first onsite meeting, infrastructure meeting, diligence meeting with PM, performance update.  These are all specific data points that are being captured in Tamale, and I can configure this report based on the key data points that I want to capture.  If I switch focus to another manager, obviously now the report that I'm seeing is on - - with the same configured data points.
 
As a user, I can come in here and I can configure this, and I can change any of the data points that I'm capturing, which is nice.  The other thing that's nice is I can print this off as a tear sheet.  So I can just hit Print Preview, and you can see that the tear sheet captures these key data points, again to help prepare for a meeting either internal or external.  So that's an example of a more dynamic report.  It can be configured at the user level, and it allows me to specify the data points that I'm most interested in.
 
Okay, sorry for the delay there.  So just another example of a report, working with multi-manager firms, what we found out was that there's a lot of information that's being saved across many managers.  And again, back to the due diligence process, making sure that you're capturing the key documents and information around the managers that you're doing due diligence on is critically important, and making sure that you can track what information has been captured, what information hasn't been captured, and what information may be out of date or out of compliance.  So we call it the aging grid report.  In this example, I'm pointing to a watch list, so here are a bunch of managers that Mark Rice is tracking, and Mark wants to see where we're in compliance or out of compliance with our due diligence process.
 
So you can see it's sort of a grid view approach.  I can see all the managers.  The color-coding represents where we're in compliance or out of compliance or where information exists or doesn't exist.  In this example, the report is indicating that we are way out of compliance with a lot of the key data that needs to be captured for this particular manager.  The key data points--background check reference, exception report, financial statements--all of these are defined based on the investment firm that we're working with.  So I went through that quickly, but hopefully it gives you an example of how once information gets into the database, through reporting and by being able to present it in unique ways, you can leverage the information much more effectively for a product by Tamale.
 
Okay, just one last thing before I open it up to questions.  We also realize that event management is an important part of the investment process.  We have a calendar in Tamale that allows us to basically see all of the events related to the managers that we're doing research on.  So in this example again, I'm looking at Mark Rice, and maybe this is his watch list or his coverage list.  All I have to do is, one click to the calendar, and I can see all events, in this example for the month of September, that are related to the managers that I'm tracking.
 
Now, I can add a new event just by hitting the New Event button, or I can take notes on an event.  Maybe this even is an event that's happening in the future.  All I have to do is double-click on it and I can--I've pretyped this in, but you can see that I've typed in some questions that I want to ask during the meeting.
 
Now, the other thing that I can do is I can, after the meeting has taken place, I can come back in and add an additional note, and I can add the answers to the key questions that I asked.  This goes back to creating better institutional memory, remembering who you're meeting with, who you're speaking to, and what was said during these critical meetings.
 
These meeting notes not only show up in the calendar, but they also show up in the Research View because they're research items just like any of the other research items that you're saving to Tamale.  There's a lot of other capabilities within the calendar.  Obviously, we've synced with your Outlook calendar so these meetings that show up in Tamale are automatically also going to show up in your Outlook calendar to the extent that these are managers that you as a user care about.
 
All right, so I went through a bunch of different use cases there.  I went through it pretty quickly, but hopefully the idea was to show you how a product like Tamale can help to facilitate a better, more consistent, more effective due diligence approach in terms of all of the managers and all of the information that you're capturing on those managers.
 
I'm going to stop there and, Dean, if you could jump back in and provide again some quick instructions on how people can submit questions, that would be very helpful.

DEAN:  Yes, thank you very much, Mike.  Thank you for that great presentation.  We have some questions that have been submitted.  So, ladies and gentlemen, as a reminder, you can submit your questions privately through our Q&A panel.  Simply reference the floating toolbar on the bottom right of your WebEx meeting screen; click on the question mark icon.  That will open the Q&A panel, and you can submit your questions to all panelists.
 
Thank you.  Please go ahead, Mike.

MR. REFOJO:  Okay, so the first question that we got is for Patty and Mason.  How much corroboration can you realistically expect of ASC 820 [phonetic] valuations?  Is the best you can hope for are that the fund in question has an agreement with their administrator and/or auditor to review their Level 3 methodology?

MS. WATTERS:  Well, this is a really important question because valuations are at the top of everybody's concerns right now.  Of course, you don't want the manager valuing their own investments.  You want some kind of independent evaluator.  And your role as a due diligence person is to go in and independently test the independent tests.  Make sure that those valuations are reasonable.  It's easy if you've got a long-short equity; you just look at the public markets.  But if you have something more complex, then you want to be sure that this is a reasonable valuation based on your view of other benchmarks.
 
One important thing that I'd like to point out is is the distinct policy being followed by the manager and their service providers.  What I like to see is a valuation committee that's been set up in case there's some kind of dispute between, for example, the administrator or the manager.  There should be well-defined roles and responsibilities, and there should be signoffs at the end of the process that there's an agreement on the valuation, and this should be consistent with the policy that you should be presented with, and also the fund documents.

MR. REFOJO:  Great, thanks, Patty.  The next question we have is regarding Tamale.  How do you integrate with existing research and consulting systems such as PerTrac [phonetic], FactSet [phonetic], etc.?  Is it case by case, or do you have an API?
 
Yeah, one of the use cases that I did not walk through when I was data integration.  Obviously, data integration is something that we work with with almost every client that's using the product, and it is case by case in the sense that data's coming from different providers, whether it's market data or performance data.  It really depends on the investment process and the manager that we're working with.
 
We do have a very robust API that allows us to capture information in Tamale and present it in Tamale to leverage alongside all of your qualitative research.  So the best way to visualize that is the aging grid report that I showed you, which is sort of a dashboard view.  Typically, data integration will be pulled in and presented in that same type of format.
 
One of the other functionalities that I didn't show you was the ability to download that report directly to Excel.  So once the information gets pulled into Tamale, you can obviously leverage it into Tamale, but you can export it to Excel with one click.
 
Another question that we have is what are the relationships between Tamale and SharePoint?  Do they complement?  Do you use one or the other?  So typically, the decision is most often made to migrate the research process to Tamale as a more robust and a more configured research management solution.  So we have worked with organizations that do use SharePoint.  Typically, if Tamale is brought in, it's to replace SharePoint; but it depends on how you're using SharePoint, and it depends what information is being stored in SharePoint.  And it could very well be that instead of replacing SharePoint, there could be some complementing functionality, and we provide some type of integration.
 
Okay, I'm sorry.  So here's a question for Patty and Mason.  Does an annual financial audit suffice for due diligence monitoring?

MR. SNYDER:  Well, I guess you could look at the financial audit from two perspectives.  One, the financial audit of yourselves as the investor, and the other, of course, is the financial audit of the manager under review.  The manager under review certainly should have its own annual financial statements, which should be part of the due diligence review but certainly do not suffice.  But from your own perspective, your financial auditors must leave the valuation and review of operational due diligence of funds in your portfolio to the investor itself.  In fact, under FAS 157, that's a requirement and cannot be performed by the same firm that also performs your financial audit.  So it's a start, but it needs to be completed by an additional effort.

MR. REFOJO:  Great.  Okay, a question for Patty.  What due diligence functions can be successfully outsourced?

MS. WATTERS:  That's a good question.  You need to look at this from an organizational perspective to find an efficient solution for you.  And it could range from all due diligence functions being outsourced, or it could be you do all of it in-house, but have a periodic review of your due diligence program by some objective parties that are making sure that you're incorporating all the best business practices and some of the other concerns.

There may be some combination.  Again, you're looking for an efficient solution where you're getting the most specific expertise that you can and perhaps some geographical focus.  You're looking for objectivity.  You're looking for experts that can most effectively, for your organization, identify and manage business risks.

MR. REFOJO:  Great, thanks, Patty.  A question for Tamale: can .WAV files be part of this database?  We record calls with managers.  Is there a size limit?
 
Yes, .WAV files can be stored very easily within Tamale.  Any file that's coming in via your inbox, obviously, you can just use the Tamale plug-in.  If we don't have a Tamale plug-in, all you have to do is right-click and send to Tamale, and that same deposit dialogue would appear.  And we have many managers who save .WAV files to the database.
 
The second part of that question is, "Is there a size limit?"  Tamale is an enterprise grade solution, and it's very, very scalable, which is one of the key benefits versus using Outlook or network folders, which tend not to be as scalable as the database grows.
 
All right, I think we have time for one more.  Okay, so another question is with respect to implementing a solution like Tamale, what is the typical process?  It's kind of a hard question to answer, but I think the biggest obstacle that we find when we're speaking to prospects about products like Tamale and about Tamale is the thought of moving from their current process to a more structured environment in Tamale.  And client support has always been a very important part of our business model because we realize that we need to make sure that Tamale can be integrated strategically, and integrated specifically around the workflow and the investment process of the managers that we're working with.

So it's a very hands-on process.  And depending on how formal your current process is, or how structured your current process is, the implementation phase can take anywhere from one month to six months.  It just really depends on the requirements surrounding the implementation process.

Okay, so we are out of time.  We'd like to thank you for attending the call today, and you can see our contact information up on the screen.  I did see that there were a bunch of questions about getting copies of the presentation, so we'll make sure that we send a copy of the deck out to all of the participants on this call.  And if you have any other questions, obviously, we would love to take your calls.

Thanks very much.  Take care.