Firm Description CreditSights Advisory Services, LLC, (“CSAS”) is a Delaware limited liability
company founded in 2012 as the successor to certain advisory business conducted
from time to time by CreditSights, Inc., a Delaware corporation (“CSI”). CSI was
founded in 2000 and since its founding has been in the business of providing
investment research to institutional investors around the world. Neither CSI nor
CSAS provide any services to individuals. CSAS is wholly-owned by CSI. CSI is a
privately held company, the majority of whose stock is owned by its employees,
former employees and their respective families, but no owner owns more than 20%
of CSI’s stock.
The majority of CSI’s business is the sale of research products on a subscription
basis, which includes fundamental research on companies, research on sectors and
industries, and investment strategy and other analytical pieces. Such services are
typically sold via a password protected website on a subscription basis to institutional
investors.
CSAS is organized to provide consulting services to institutional asset managers,
consisting primarily of pension funds, investment managers, and insurance
companies. Such services typically relate to customized research projects regarding
individual issuers or sectors, and each such advisory relationship is governed by a
separate, customized agreement. Such agreements do not ever involve trading or
authority over a customer’s account, and accordingly, client restrictions on investing
in certain types of securities are not applicable to CSAS’s business. CSAS had one
such consulting engagement in the 12 months ended December 31, 2019, relating to
an agreement it entered into in 2017, but it was not material (less than $1,125 in
aggregate compensation).
Generally, CSAS’s business is limited to evaluating companies and sectors from a
fundamental research perspective, with particular emphasis on fixed income and
capital structure issues. Direction for the scope of such research projects is arrived
at through discussion and negotiations between CSAS and the particular client and
is then set forth in a customized advisory agreement or engagement letter. CSAS
does not provide a full range of advisory services, nor does it offer advice with
respect to particular trading strategies, or strategies relating to other tradable
instruments (e.g., futures, options), or certain matters that are beyond the scope of
its core focus on corporate credit (e.g., emerging markets, interest rates, structured
products such as mortgage- or asset-backed securities, etc.).
While CSAS does not currently manage any assets directly or in an advisory
capacity on an ongoing basis, CSAS is considering providing portfolio consulting
services along the lines of bond selection based on certain objective criteria and
analyst input, although it has no such active engagements at present. CSAS
typically may be engaged to provide consulting and evaluative services on an
episodic basis (e.g., a specific research project) or a periodic basis (e.g., consulting
with respect to a client’s portfolio on a quarterly or semi-annual basis). In such
cases, CSAS has no authority (discretionary or non-discretionary) over any
customer’s assets, nor does CSAS have access to any customer accounts with any
institution or any other personally identifiable customer information.
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Description Fees charged by CSAS for its services are based on negotiation between the client
and CSAS and are negotiable.
Fees for customized research reports range depending on the scope and nature of
the report and are negotiated and established prior to the preparation of the report
(or reports).
Fees for portfolio monitoring are based on negotiation and are arrived based on the
complexity of the review, which can depend on, among other things, the number of
investments in a client’s portfolio, whether CSAS or its affiliates already have such
names under research coverage and similar factors.
In other cases, a client may retain CSAS to provide research reports and may agree
to pay for such research report preparation on an hourly basis. In such cases, the
hourly rate ranges from $250 - $500 per hour based on the experience of the
analysts working on the project.
In almost all cases, such fees, while agreed in advance, are billed by CSAS and due
to CSAS after the completion of the project. In addition to such fees, agreements
with customers will also provide for reimbursement to CSAS for any agreed out of
pocket expenses, and any applicable taxes.
In addition, such reports are often accompanied by the sale by CSI of one or more
subscriptions to CSI’s subscription-based research product, the base cost for which
is $20,000 per licensed user.
Total fees for all such services earned by CSAS in 2019 were less than $1,125; none
of which were earned from any entity other than a registered investment advisor.
6. Performance-Based Fees Sharing of Capital Gains Fees are not based on a share of the capital gains or capital appreciation of
managed securities.
CSAS does not use any performance-based fee structures because of the potential
conflict of interest. Performance-based compensation may create an incentive for
the adviser to recommend an investment that may carry a higher degree of risk to
the client.
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Description CSAS only provides its advisory services to certain institutional clients. It does not
enter into transactions with individuals. Its consulting and advisory business is
limited to brokers, banks or thrift institutions, investment companies, pension and
profit sharing plans, charitable organizations, traditional and alternative asset
managers, corporations and governmental or quasi-governmental agencies or
entities.
The terms of its contracts are generally project-based, rather than calendar-based,
and vary in scope of service.
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Methods of Analysis The primary method of analysis used by CSAS in performing its advisory services is
fundamental analysis.
The main sources of information include financial information provided by financial
information providers, including quote, price, and other market and financial data,
financial newspapers and magazines, trade publications, inspections of corporate
activities, research materials prepared by others, corporate rating services, annual
reports, prospectuses, filings with the Securities and Exchange Commission, and
company press releases.
CSAS also uses outputs from the quantitative models managed by its affiliate,
CreditSights Analytics, LLC (“CSA”). CSA’s models consist of a suite of quantitative
risk models that provide measures of company-level short- and medium- term credit
risk. The short-term analysis is a one year forward probability of default, and the
medium-term analysis is based on a 5 year probability of default. In addition, the
models provide trend analysis, providing a signal as to the direction of changes in
default probability.
Investment Strategies CSAS does not employ any particular investment strategy with its clients, as its
services are discreet analytical exercises with respect to particular issuers or sectors
and it is not managing assets or directing or recommending investments for or on
behalf of any other party. In addition, CSAS and its affiliates’ core area of expertise
is in the area of analysis of corporate debt. Because of the limited nature of its work,
CSAS believes that its clients use CSAS’ reports as one part of their overall
investment strategy, but CSAS itself does not have input or direction over any client’s
investment strategy or objectives or asset allocation goals. As a result, CSAS’
services are used by its clients primarily so they are able to develop a better
understanding of a particular issuer or security in their portfolios, or a better view on
a particular sector. CSAS has no involvement with any subsequent decisions a
client may make regarding the content of the reports or services that CSAS provides.
Risk of Loss All investment programs have certain risks that are borne by the investor. Securities
markets can experience significant declines due to a number of factors, including
adverse issuer, political, regulatory, market or economic developments. Investors
may face the following investment risks:
Interest-rate Risk: Fluctuations in interest rates may cause investment prices
to fluctuate. For example, when interest rates rise, yields on existing bonds
become less attractive, causing their market values to decline.
Market Risk: The price of a security, bond, or mutual fund may drop in reaction
to tangible and intangible events and conditions. This type of risk is caused by
external factors independent of a security’s particular underlying
circumstances. For example, political, economic and social conditions may
trigger market events.
Inflation Risk: When any type of inflation is present, a dollar today will not buy
as much as a dollar next year, because purchasing power is eroding at the rate
of inflation.
Currency Risk: Overseas investments are subject to fluctuations in the value of
the dollar against the currency of the investment’s originating country. This is
also referred to as exchange rate risk.
Reinvestment Risk: This is the risk that future proceeds from investments may
have to be reinvested at a potentially lower rate of return (i.e. interest rate).
This primarily relates to fixed income securities.
Foreign Exposure Risk: Foreign securities and securities issued by US entities
with substantial overseas operations can involve additional risks relating to
political, economic, or regulatory conditions in foreign countries. These risks
can include currency risks, trading and operational risks, and less stringent
investor protection models.
Business Risk: These risks are associated with a particular industry or a
particular company within an industry. For example, oil-drilling companies
depend on finding oil and then refining it, a lengthy process, before they can
generate a profit. They carry a higher risk of profitability than an electric
company, which generates its income from a steady stream of customers who
buy electricity no matter what the economic environment is like.
Liquidity Risk: Liquidity is the ability to readily convert an investment into cash.
Generally, assets are more liquid if many traders are interested in a
standardized product. For example, Treasury Bills are highly liquid, while real
estate properties are not. Recent developments in the markets have
suggested that liquidity in many fixed income instruments may be declining as
market participants reduce inventories of investments and reduce their market-
making activities.
Financial Risk: Excessive borrowing to finance a business’ operations
increases the risk of profitability, because the company must meet the terms of
its obligations in good times and bad. During periods of financial stress, the
inability to meet loan obligations may result in bankruptcy and/or a declining
market value.
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Legal and Disciplinary The firm and its employees have not been involved in legal or disciplinary events
related to past or present investment clients.
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CSAS is not engaged in any other financial industry activities other than the activities
described above, and does not sell any other products or services other than as
described above.
Affiliations Not applicable as CSAS does not have any affiliations with related persons including
but not limited to brokers, attorneys, accountants, insurance companies or agencies,
or investment companies that are material to its advisory business.
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Personal Trading Code of Ethics The employees of CSAS have committed to a Code of Ethics that is available for
review by clients and prospective clients upon request. The firm will provide a copy
of the Code of Ethics to any client or prospective client upon request. Employees of
both CSAS and its affiliated entities are required to abide by the Code of Ethics.
Participation or Interest in Client Transactions Not applicable.
Personal Trading All employees of CSAS and its affiliated companies must report their securities
trading activities to the Chief Compliance Officer no less often than quarterly, and
every employee has given, and annually recertifies, to the Chief Compliance Officer,
CSI’s right to request brokerage account and trading records to ensure that all
personal trading is in compliance with CSI’s policies.
Employees of CSAS and its affiliated companies are strictly prohibited from trading in
the securities of companies for which they have research coverage responsibilities
unless such trade has been approved in advance in writing by the Chief Compliance
Officer and the Chief Executive Officer. In addition, all employees are prohibited
from trading in the securities of any issuer as to which they are aware of any
unpublished research reports.
These rules are designed to ensure that employees do not trade in advance of the
publication of research that might be market-moving, and to ensure that employees
do not put their interest in a personal investment position ahead of their research
responsibilities, both of which could constitute conflicts of interest with the interests
of clients.
Employees of CSAS and its affiliated entities are also required to certify with respect
to each trade of securities that they make that they have not made the trade on the
basis of material non-public information.
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Selecting Brokerage Firms CSAS does not have any affiliation with any brokerage firms and does not select,
recommend, or endorse any brokerage firm for any client for any purpose.
Best Execution Not applicable
Soft Dollars Not applicable
Order Aggregation Not applicable
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SEC “Custody” Account Statements Performance Reports Net Worth Statements Not applicable as CSAS services are purely advisory services to managers with
assets under management, and accordingly CSAS does not manage any client
accounts, nor does CSAS have any custodial assets, arrangements with custodians,
or any access to any client account or account information.
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Discretionary Authority for Trading Limited Power of Attorney Not applicable. CSAS conducts no trading activities and has no authority over any
accounts.
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Proxy Votes CSAS does not vote proxies on securities. Clients are expected to vote their own
proxies. CSAS has not been requested to provide proxy recommendations to a
client, but if CSAS were requested to provide proxy recommendations as part of an
advisory agreement, CSAS would do so, and would disclose any conflicts of interest,
if a conflict existed.
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Financial Condition CSAS does not have any financial impairment that will preclude the firm from
meeting contractual commitments to clients.
A balance sheet is not required to be provided because CSAS does not serve as a
custodian for client funds or securities, and does not require prepayment of fees of
more than $1,200 per client, and six months or more in advance.
Brochure Supplement (Part 2B of Form ADV) – not applicable
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Open Brochure from SEC website