When it comes to fixed-income investments, the devil is in the details, especially when a credit event such as a default is approaching.
Because the specter of default is omnipresent in the high-yield bond market, investors who trade these securities scour paperwork related to the bond in question, from the credit agreements and amendments to indentures and supplementals. They are trying to understand what the debt issuer can or can't do.
The due diligence of reviewing legal documents can take months. And what is worse, because investors are spending so much time doubling as lawyers, they have less time to size up other alpha-generating investments.
In order to alleviate the burden of reviewing these documents, financial technology start-up Street Diligence has launched a platform that automates the due diligence process. The service reviews and structures relevant documents so that it is easier for investors to assess the fixed-income investments.
For example, investors can quickly compare similar terms across documents with interactive navigation. They can skip through covenants by using the relevant menu.
Street Diligence allows users to drill down into the source document to quickly audit one's work. And the service also aggregates all previous versions of the master document so that users can be sure which version they are reading.
In short, this product is a time saver.
The startup's founders, Duo Ai and Stephen Hazelton, were all too familiar with the time-intensive due diligence process involved in reviewing fixed-income securities. Hazelton was a hedge fund manager who thought that there must be a more efficient way to evaluate bond investments.
He joined with Ai, the technical lead who is developing the legal language processing technology. Ai has spent more than a decade in software development in the financial sector, most recently at investment management firm Bridgewater Associates.