Fund of funds managers continuously face the issue of underlying managers' willingness and ability to provide position level transparency. Some service providers say that a fund of funds must receive complete transparency in order to quantify and analyze their risk. At IA, we live in the real world. We know that in practice, a fund of funds will likely have some limited transparency managers, and we've solved the problem of analyzing those managers' risk and aggregating them with the ones who do provide full transparency. Please click on the links to learn more about how we handle this very real issue.


More and more managers are providing position level transparency to their investors, allowing analyses to be done at the most granular and detailed levels. By aggregating those positions and their associated analyses into meaningful categories (specified by the fund of funds), IA is able to provide a custom view of the investments and how they interact with one another.

Analyses like volatilities, correlations, VaR, regressions, betas, sensitivities, and scenarios can be performed based on those daily positions, giving a more accurate snapshot of the portfolio each day.


Reality is that not every manager provides position level transparency. Some will provide historical positions, others will provide allocations to sectors or asset classes, while others still will provide only returns. Whatever the case, IA deals with this situation every day.

There are many techniques to analyze limited transparency managers. After all, the mutual fund industry has dealt with this issue for decades. But it's not enough to be able to analyze a limited or nontransparent manager's risks-the analyses must be consistent with how you look at the fully transparent managers, so that the entire portfolio's risks can be aggregated and the different parts compared.

IA provides the same set of analyses for limited transparency managers as for fully transparent ones. We are able to do so by creating what we call "synthetic transparency." We construct a basket of liquid securities that reproduces the manager's historical return and risk levels. We then use this basket in place of the limited transparency manager for risk analysis.

With each manager analyzed as a set of liquid positions (either his or her own or the synthetic basket), the entire portfolio can be analyzed consistently and different parts can be compared to each other, letting the fund of funds manager see things like the correlations and betas of each manager with industry benchmarks or with each other.


IA is able to handle limited transparency managers in the same way as fully transparent managers through a technique we developed called "synthetic transparency." We construct a basket of liquid securities that reproduces both the historic returns and risk levels of the manager. Because that manager's positions are not available, we use the basket of liquid securities in their place. This way, every manager (fully transparent or not) is analyzed based on underlying positions.

Construction of the basket can take many forms, from assignments by the manager into sectors or indices, to regression analyses that extract sensitivities, or to liquid securities based on previous returns. However the basket is constructed, it is used as a substitute for the manager's hidden positions.


Meeting investor demand for transparency is easy with Investor Analytics. IA is able to provide limited access to anyone authorized by the FoF-be that person an investor, a member of upper management, or a potential business partner. We can limit individual users to any level within the structure set up by the FoF. For instance, investors may be able to see summary risk and return information and a breakdown by strategy but not by manager nor down to the individual instrument level.