There are approximately 6,000 professional long-only money managers in the United States alone. Then there are approximately 6,000 U.S. and international alternative investment managers globally. With 12,000+ professional money managers to choose from, product selection could be a daunting task.

Arque & Co. selects products for inclusion onto its ArqueXchange™ wealth management platform in the following manner:

First Screen

Arque & Co. applies an initial screening process consisting of a quantitative filter utilizing an Ibbotson analytics system and a Nelsons long-only manager database to identify what we believe are some of the better long-only managers available today in each of the traditional management style classes. A TASS Research database is used to analyze alternative investment managers.

The First Screen process applied to our prospective target list include (but is not limited to) total firm assets under management, total product assets under management, years in business, compliance records, etc.

Second Screen

Arque & Co.’s Investment Selection Team meets as a group to analyze the managers and products that made the First Screen and subjectively attempts to identify a smaller, more attractive Second Screen list of managers and products.

As part of the Second Screen process, Team members conduct objective secondary due diligence processes to find out as much public information as available on targeted money managers and their products that made the First Screen. Team members apply all available publicly available resources to better understand manager philosophies and management styles, then conduct further quantitative analyses to reduce the number of managers from the First Screen list by at least 50%. As part of this Second Screen process, Team members may contact friends and associates within the industry to identify and/or confirm managers’ general reputation and to access and possibly confirm any Wall Street rumors associated with such managers. Finally, Arque & Co.’s Selection Team analyzes each manager’s potential attractiveness based on where they are thought to be in their respective business cycles. Arque & Co.’s Selection Team then seeks to reach a consensus vote before a decision is made to allow a manager and/or product to gravitate to our Third Screening process.

Third Screen

Arque & Co. initiates contact with Third Screen candidates to begin an elaborate process of initial due diligence., on-site meetings and sub-advisorial/affiliation negotiation.

As part of its third screening process, the Investment Selection Team requests and reviews:

Monthly performance information; detailed descriptions of management philosophy and investment style; any product fact sheets presented, marketing materials (if any); monthly newsletters, pertinent information in offering document/partnership agreements; breakout information of assets under management; and growth and distribution information of assets under management to evaluate product and audited financials; biographical information; pertinent information in offering document/partnership agreements; principals’ personal investment; succession plans (when relevant); Form ADV Part II; company website; and references to evaluate the investment management firm.

Fourth Screen

Once managers and products pass Arque & Co.’s Third Screening process, at least two members of the Investment Selection Team visit the manager’s headquarter office to conduct an initial onsite due diligence visit.

Initial due diligence visits can last anywhere from 2 hours to one day with most being about 3 – 4 hours. Arque & Co.’s visiting Investment Team Members must always accomplish the minimum of three tasks during an onsite initial due diligence visit:

1.- Take a tour of the facility to visually confirm the presence of a solid and organized working environment, working staff, systems infrastructure, and trading environment (if applicable).

2.- Meet with Principals, Managing Directors, Chief Investment Officers, Portfolio Managers and/or Compliance Managers to review professional backgrounds of principals, professional turnover, back office capabilities, firm compliance policies, privacy policies, and technology security policies. In addition, institutional client turnover and/or distribution company turnover are also discussed.

3.- Leave the meeting knowing that they comprehensively understand how that company manages clients’ funds. At a minimum the visiting members of our Investment Selection Team will review portfolio management methodology, investment universe, source of investment ideas, security selection process, risk management control process, management discipline and constraints, market and sector exposure policies, initial and subsequent security purchase policy, portfolio turnover, and trading rotation policy. Our members will also analyze details of specific positions to learn the thought process and emotion management behind the company’s portfolio management methodology.

Alternative Investments

For alternative investment managers, our team will also review and analyze:

1.- Portfolio management issues such as leverage use policy, hedging techniques used, overlay mechanisms used (if any), types of and risk parameters of derivatives used (if any), sources of ideas, and sub-advisors used.

2.- Account administration issues such as prime brokers used and fund administration platforms used

3.- Fee and account structures issues such as back-end incentive fee formulas, use of high watermarks (or not), hurdle rates (if any), management fee formulas, lock-up period restrictions, valuation frequency, and K-1 reporting standards

Fifth Screen

The members of the Investment Selection Committee that attended the onsite visit must prepare Arque & Co.’s official files on the company visited. This file is reviewed with all Investment Selection Committee members and final consensus by all members are sought after comparing the strengths and weaknesses of various managers visited.

Invitation & Negotiation

Once a particular manager and product are selected by Arque & Co.’s Investment Selection Committee, the manager is contacted by Arque & Co.’s Negotiation and Integration Team and invited to participate in our wealth management platform.