Post Summary
Operating risk across 7,064 alternative managers, using Convergence's Complexity/Risk Profiles.
63% carry a medium-to-high risk operational profile, and 21% carry a high complexity/risk profile.
1,488 managers were high (21%), 2,966 medium (42%), and 2,610 low (37%).
$8.9 trillion in private fund assets.
Multi-Strategy (420), Private Equity (269), Equity (199), and Fund of Funds (158). Hedge funds are roughly 50% of the private fund types they manage, and private equity funds 25%.
Investment and business model complexity drives operating risk1 and the work required of Institutional Investors, Administrators and their Auditors to monitor and support them is getting tougher based on new research conducted by Convergence. The results are somewhat startling in that 63% of all Managers profiled carry a medium-to-high risk operational profile, with 21% carrying a "high" complexity/risk profile. Convergence examined and measured operating risk across 7,064 Alternative Managers and determined that Managers with a "high" complexity/Risk Profile manage $8.9 trillion in private fund assets. The most common strategies among these Managers that are Multi-Strategy (420), Private Equity (269), Equity (199), and Fund of Funds (158). Hedge Funds represent roughly 50% of private fund types managed by these Managers, with Private Equity funds at 25%.
Convergence Complexity/Risk Profiles©
- The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.
Key Points
What did Convergence find about operating risk across alternative managers?
- Elevated risk is common. 63% of managers profiled carry a medium-to-high risk operational profile.
- One in five is high. 21% carry a high complexity/risk profile.
- Sample size. Convergence examined and measured operating risk across 7,064 alternative managers.
- Stated premise. Investment and business model complexity drives operating risk.
- Stated consequence. The work that institutional investors, administrators, and their auditors need to monitor and support these managers is getting tougher.
How were the 7,064 managers distributed across the three profiles?
- High. 1,488 managers, or 21%.
- Medium. 2,966 managers, or 42%.
- Low. 2,610 managers, or 37%.
- Combined. High and medium together account for 4,454 managers, the 63% the paragraph reports.
- Source. The chart is titled Convergence Complexity/Risk Profiles©.
What did Convergence find about the high-profile managers?
- Assets. They manage $8.9 trillion in private fund assets.
- Most common strategies. Multi-Strategy (420 managers), Private Equity (269), Equity (199), and Fund of Funds (158).
- Fund types. Hedge funds are roughly 50% of the private fund types these managers manage, and private equity funds are 25%.
- Combined. The four named strategies cover 1,046 of the 1,488 high-profile managers.
How does the page define operating risk?
- Definition. The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.
- Who it affects. Institutional investors, administrators, and their auditors.
- Date. The research was published July 26, 2016, as Convergence Insight #5.