http://buttonwooddd.com/ ALTSeek - Blog RSS Feed 2.0 en-us Thu, 12 Nov 2026 11:52:37 GMT Thu, 12 Nov 2026 11:52:37 GMT http://buttonwooddd.com/blog/18855/When-Alternative-Investments-Disappoint blog When Alternative Investments Disappoint What Comes Next A distribution gets suspended. An updated valuation comes in lower than expected. A liquidity event gets pushed back again. Your client wants to know what happened, what it means for their money, and what you're doing about it. Those conversations are easier to navigate when the firm already has a process for evaluating warning signs and responding to changes. Even thorough due diligence can't prevent every disappointing outcome. It can, however, give advisers a stronger foundation for deciding what comes next and explaining that decision. Look beyond the investment story A compelling strategy can draw attention away from questions about how a program actually operates. How are distributions funded? Who independently verifies the financial information? What happens if fundraising slows? How much discretion does the sponsor have, and where do conflicts arise? A useful evaluation considers several areas together: Sponsor integrity: The background, experience, and disclosures of the people running the program. Investment merit: Whether the strategy, assumptions, and return expectations make sense. Operational controls: The quality of reporting, independent oversight, and financial controls. Capital needs: How dependent the program is on continued fundraising or access to financing. Structure: The fees, conflicts, liquidity terms, and provisions that affect investors. The point is to understand how the pieces work together. A concern that looks manageable on its own may take on greater significance alongside other weaknesses. Treat warning signs as questions to investigate Delayed financial statements, an auditor change, or a distribution reduction can warrant closer review. None automatically establishes that an investment has failed. Context matters. Why did the auditor change? What caused the reporting delay? Is a distribution reduction intended to preserve cash, or does it reveal a deeper problem with the program's economics? The source of distributions deserves particular attention. Depending on the structure, distributions may include operating income, borrowing, asset-sale proceeds, or a return of capital. Those sources have different implications for sustainability. A steady payment history alone doesn't answer the question. The review should lead to a documented assessment: what changed, what remains uncertain, and whether the firm needs to adjust its monitoring or recommendations. Reach out while the facts are developing When a material concern emerges, waiting for a complete explanation can leave clients filling the information gap themselves. An initial conversation can be useful even when the assessment is still underway. It should cover what is confirmed, what remains unknown, what the adviser is reviewing, and when the client will hear more. For a distribution suspension, that might sound like: "The sponsor has announced that distributions are suspended. We're reviewing its explanation and the available financial information to understand what this means for the investment and your income needs. We don't yet know how long the suspension may last. I'll update you by Friday, even if some questions are still open." That gives the client a clear account of the situation and a specific next step without predicting an outcome. Connect the event to the client's situation The same investment event can affect clients differently. A delayed liquidity event may be manageable for someone with ample liquid reserves. It may create a more immediate problem for someone who expected to use those proceeds for living expenses or a major purchase. Likewise, a valuation decline needs context. What changed in the underlying assets? How was the valuation determined? What does the new information mean for the investment's role in the portfolio? Bring the conversation back to the client's income, liquidity needs, concentration, and available options. When an immediate exit isn't possible, explain what can be done now and what developments would prompt another decision. Record the conversation and follow through The file should capture what was communicated, when the conversation occurred, the client's response, and any action agreed upon or deferred. Then deliver the promised update. "We're still waiting for additional information" can be a meaningful update when it also explains what remains outstanding and how the firm is following up. Avoid assurances such as "I'm sure it will be fine." Clients need a candid assessment of the available information and confidence that someone is actively working through it. Build the process before you need it This is where ongoing monitoring connects the original evaluation to the decisions that follow. ALTSeek Sentinel supports ongoing sponsor and strategy monitoring, helping firms bring updated information into their reviews. Advisers can use those findings alongside their knowledge of each client to assess concerns, document decisions, and guide communication. A difficult investment outcome puts both the review process and the client relationship under pressure. Having a consistent monitoring approach gives the firm a clearer basis for responding when that happens. Explore ALTSeek Sentinel to learn how it can support your firm's ongoing alternatives monitoring. Mon, 09 Nov 2026 06:00:00 GMT http://buttonwooddd.com/blog/18855/When-Alternative-Investments-Disappoint http://buttonwooddd.com/blog/18854/Monitoring-Alternative-Investments-After-the-Sale blog Monitoring Alternative Investments After the Sale You've evaluated the sponsor, reviewed the offering documents, and determined how an alternative investment fits into your client's portfolio. The investment is funded, and the due diligence file is complete. What happens next? For many advisory firms, the process becomes less structured at this point. Sponsor updates arrive. Distributions get checked. Questions come up during client meetings. But those activities don't necessarily add up to a consistent monitoring program. Ongoing oversight means having a process for identifying changes, evaluating what they mean, and deciding whether action is needed. With alternatives, that can take some deliberate work. Keep two questions in view Alternative investments often provide information less frequently than publicly traded investments. Financial statements may arrive months after the reporting period ends, and liquidity options can be limited. That makes it useful to separate monitoring into two questions: Is the investment still operating as expected? Consider performance, financial condition, management, reporting, and material changes to the strategy or structure. Does it still fit this client? Changes in income, health, family circumstances, or cash needs can affect an investment's role, even when the investment itself is performing as expected. A sound investment can become a difficult fit for a particular client. A monitoring process needs to make room for both assessments. Put reviews on the calendar and respond to events Scheduled reviews create consistency. Event-driven reviews help address developments that shouldn't wait until the next meeting. A practical starting point might include quarterly reviews of investment updates and sponsor developments, periodic client-level reviews of concentration and liquidity needs, and a more comprehensive annual reassessment. The appropriate frequency depends on the investment, available information, and the firm's advisory arrangements. Between scheduled reviews, certain developments should prompt a closer look: a distribution reduction, delayed financial statements, an auditor change, a key executive's departure, or a regulatory action involving the sponsor. A trigger doesn't automatically mean an investment has failed. It means there is something to investigate. The process should identify who reviews it, how quickly, and where the resulting decision is recorded. Give the watch list a purpose Sometimes a concern warrants more attention before it warrants a final decision. That's where a watch list can help. Each entry should identify the concern, the person responsible for following up, the information needed, and the next review date. It should also explain what would resolve the issue or lead to further action. For example, "monitor reporting" leaves a lot unanswered. "Obtain the delayed audited financial statements, assess the reason for the delay, and review by the assigned date" gives the team something concrete to do. Document the judgment behind the decision Saving sponsor communications is useful, but the file should also show what the firm concluded. A clear monitoring record captures what was reviewed, the sources consulted, material findings, the decision, and the rationale. It should identify who completed or approved the review. That includes decisions to continue holding. If a distribution reduction prompted a review and the firm concluded that continued holding remained appropriate, the reasoning belongs in the record. A useful test: could another person understand the review and decision without asking the author to explain it? Plan for limited liquidity An investment concern doesn't always come with an immediate exit option. When liquidity is limited, the response may include heightened monitoring, evaluating available redemption or transfer opportunities, reassessing other portfolio liquidity, and communicating with affected clients. The monitoring process should account for what the firm can do now and what would prompt another decision later. Make ongoing oversight part of the process For a small firm, consistent monitoring takes time and resources. Someone needs to follow sponsor developments, review new information, flag concerns, and keep the process moving alongside everyday client work. That's where ALTSeek Sentinel fits into the alternatives journey. Sentinel supports ongoing sponsor and strategy monitoring, helping firms bring current information into their investment reviews and client-level assessments. Those two perspectives belong together. A change at the sponsor or investment level may warrant a closer look across multiple portfolios. A change in one client's circumstances may call for a fresh assessment of an otherwise stable investment. The adviser brings those findings together to determine what they mean for the client and document the next step. Within ALTSeek, Sentinel carries the process into ongoing oversight, connecting the initial evaluation with the reviews that follow throughout the holding period. The due diligence file explains why an investment was selected. Ongoing monitoring helps explain its place in the portfolio today. Explore ALTSeek Sentinel to learn how it can support your firm's ongoing alternatives monitoring. Wed, 04 Nov 2026 06:00:00 GMT http://buttonwooddd.com/blog/18854/Monitoring-Alternative-Investments-After-the-Sale http://buttonwooddd.com/blog/17186/Monitoring-Alts-After-Sale-Webinar blog Most alternatives programs focus heavily on upfront due diligence but have far less structure around  ongoing monitoring and oversight. That gap is where much of the regulatory and fiduciary risk exists. This webinar explains why monitoring alternative investments is an ongoing fiduciary obligation, not just a  best practice, and how RIAs can build a practical, defensible monitoring framework for illiquid investments  that remain in client portfolios for years. Wed, 27 May 2026 06:00:00 GMT http://buttonwooddd.com/blog/17186/Monitoring-Alts-After-Sale-Webinar http://buttonwooddd.com/blog/13032/The-Dangers-of-Piggyback-Riding blog When we're young, it's common for friends to jump on each other's backs or shoulders and get a piggyback ride. These are heaps of fun until the first time we crack our head on the monkey bars or a tree branch. After that, we give the environment in which we try piggyback riding much more thought. As many strong voices in finance, investment, and due diligence try to dissect the implosion of the cryptocurrency exchange FTX, we keep nodding our heads at a common question: How did reputable FTX backers miss the warning signs? This query leads to a simple and distinct conclusion for due diligence professionals and their stakeholders: beware 'piggybacking' due diligence, or one may end up hitting proverbial monkey bars like the fraught crypto exchange. What is Piggybacking? In the alternative investment field, prospective investor firms may look over a myriad of standard items: financial statement trends, auditor quality and opinion, capacity of employees to cover necessary duties, asset modeling, underwriting, and many others. Among these items is quality peer reviews. Firms often look to see whether an asset or investment program has passed the investment committees of asset class leaders they believe to have significant weight and expertise. If so, a firm may have an increased comfort level if or when the same program reaches their investment committee. Executives may press certain issues with less fervor, essentially piggybacking off the due diligence of the asset class leaders, however intentionally or unintentionally. As the FTX case proved, this can incur significant risk.  The FTX Case Sequoia Capital has been a standout name among venture capital firms for nearly 50 years, having managed 34 funds, over 359 portfolio company exits[1], and an adviser entity overseeing over $80 billion as of early 2022[2]. The firm has had some of the highest profile successes in Silicon Valley: Apple, Cisco, Google, LinkedIn, WhatsApp, and Zoom, among several other sizable names[3]. By most measures, this can be viewed as one of most successful track records in venture capital and could reasonably denote a substantial expertise of underwriting and monitoring to investors. In July 2021, one of Sequoia's funds invested $150 million into FTX entities during a Series B funding round, and another Sequoia fund separately invested $63.5 million[4]. And they were not the only ones. About 80 firms participated in funding FTX with nearly $2 billion in a two-year period, including Softbank, Temasek, and Paradigm[5]. During the process, Sequoia decided to forgo some of its standard due diligence controls for investments of this size, including external board oversight[6].  The firms would go on to miss a myriad of flags. Flags FTX had a definitive conflict of interest with its leadership owning and running a hedge fund engaged in crypto trading (Alamaeda Research). In fact, FTX founder Sam Bankman-Fried indicated he had started FTX to help fix difficulties that Alamaeda was experiencing[7]. Additionally, FTX embraced significant leverage and loaned money to Alameda[8]. FTX featured a small staff and young executives[9], despite running something as complicated as an exchange in a growing, but fledgling asset type. FTX maintained an employee count of several hundred, while its competitor Coinbase hired thousands[10]. At the same time, FTX had no real human resources department[11] and exhibited a disparate and complex organizational structure[12]. After the failure of FTX, the replacement CEO brought in as part of the bankruptcy process stated that he hadn't observed "such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here." His immediate remedy actions began with the establishment of controls for "accounting, audit, cash management, cybersecurity, human resources, risk management, data protection, and other systems that did not exist, or did not exist to an appropriate degree prior to my appointment." The new CEO, John Ray III, oversaw the Enron bankruptcy and has about 4 decades' experience in the field.[13] Meanwhile, Sequoia had refrained from contacting the exchange's founder for updates, and he had been known to play video games on investor update calls. A partner quote from a self-published Sequoia article read: "Embarrassingly, we had never tried to reach out to Sam, because we figured he didn't need us. I thought they were just minting money and had absolutely no need for investors."[14]  Signals As a trained due diligence professional makes their way through the (inexhaustive) catalog of flags above, the professional can easily surmise that a number of the flags above would have come to the fore during basic steps of their own process. Yet, one of the top VC firms in the world missed nearly all, if not all of them. While the FTX position ultimately represented a small percentage of the funds in which it was held, Sequoia eventually wrote its entire $214 million exposure down to zero[15]--a complete loss on the position. Such a large process failure sends a signal. And there are few stronger signals that investors and investment firms should beware piggybacking. Rather, they might consider hiring strong due diligence professionals and keenly examining their independent analyses, even when preeminent asset class leaders back a popular investment. Monkey bars hurt. About Buttonwood Now in our 20th year, Buttonwood Due Diligence is a leading provider of research, education and due diligence support to the Broker Dealer, Registered Investment Advisor, and Family Office communities. Our knowledge and insight into the alternative investment industry is backed by decades of experience and credentialed analysts including MBAs, CPAs, CAIAs, and JDs. Buttonwood provides a wide range of fully customizable services including: Investment and Manager/Sponsor Due Diligence Reviews Manager/Sponsor Qualifications Buttonwood AIM - Customized On-Going Due Diligence for both private and public programs BW Centurion - Members Only RIA Alternative Investment Support Consultations - Managers/Sponsors and BD/RIA/Family Offices Investment Committee Reports and Due Diligence Support Education Product Training and Testing Source List/Endnotes   [1] https://www.crunchbase.com/organization/sequoia-capital [2] https://www.wsj.com/articles/sequoia-capital-changes-regulatory-status-to-broaden-investment-scope-11641816003 [3] https://www.cnbc.com/2020/09/18/sequoia-had-a-9-billion-week-from-three-ipos-and-helped-on-tiktok.html [4] https://www.reuters.com/business/finance/sequoia-capital-cuts-fees-new-funds-amid-vc-slowdown-2023-01-13/ [5] https://economictimes.indiatimes.com/tech/newsletters/ettech-unwrapped/how-did-ftx-fleece-the-worlds-shrewdest-investors/articleshow/95611498.cms?from=mdr [6] https://www.wsj.com/articles/sequoia-capital-apologizes-to-limited-partners-for-ftx-investment-11669144914 [7] https://www.forbes.com/sites/brandonkochkodin/2022/11/11/the-red-flags-on-ftx-we-all-seemed-to-miss/?sh=11cfbfcf11f6 [8] https://www.wsj.com/articles/sequoia-capital-changes-regulatory-status-to-broaden-investment-scope-11641816003 [9] https://fortune.com/2022/11/11/sam-bankman-fried-crypto-empire-ftx-alameda-run-gang-kids-bahamas-who-all-dated-each-other/ [10] https://fortune.com/2022/06/18/ftx-sam-bankman-fried-coinbase-brian-armstrong-crypto-layoffs/ [11] https://www.cnbc.com/2022/11/17/ftx-ceo-shreds-bankman-fried-never-seen-such-a-failure-of-controls-.html [12] https://www.forbes.com/sites/georgecalhoun/2022/11/21/ftx-and-esg-a-panorama-of-failed-governance-pt-1--the-internal-failures/?sh=2e7e143f2d9d [13] https://www.cnbc.com/2022/11/17/ftx-ceo-shreds-bankman-fried-never-seen-such-a-failure-of-controls-.html [14] https://www.forbes.com/sites/brandonkochkodin/2022/11/11/the-red-flags-on-ftx-we-all-seemed-to-miss/?sh=4a52018911f6 [15] https://www.cnbc.com/2022/11/10/sequoia-capital-marks-down-its-ftx-investment-to-0.html Wed, 27 Mar 2024 06:00:00 GMT http://buttonwooddd.com/blog/13032/The-Dangers-of-Piggyback-Riding