Risk management: It’s a key part of the alternative investment process for both allocators and the buy-side entities they engage. For every transaction they undertake, these firms must ensure they have a contingency plan for when an investment does not perform as expected and that their overall strategy accounts for deviations from this expectation. But to truly mitigate all possible vulnerabilities goes much deeper than investment strategy. In fact, processes as simple as wiring money to the proper destination are today rife with risk, demanding that alternative allocators be vigilant in their approach.
According to a recent report from Agari, a provider of email security solutions, capital call investment scams have become an increasingly popular means of defrauding allocators out of their money. In these cases, a bad actor sends a phony invoice requesting funds in accordance with a given capital commitment, with the wire information routing to the scammer’s own account. Firms that fail to do their due diligence on these requests are opening themselves up to substantial financial loss – the report found that the average amount targeted is over $800,000 – not to mention negative headlines and a damaged reputation. This kind of fraud is not limited to email – it can also occur via secure document portals or through any other means by which this information is exchanged.
Alternative allocators and their treasury teams have historically taken a few different routes to verify the wire information on these capital call notices, depending on how advanced their treasury system is. The common thread is that all leave much to be desired in terms of risk reduction and efficiency.
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