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John Phinney, Convergence

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Convergence launches ‘complexity profiling’

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FinTech company Convergence has launched Advisor Complexity Profile, designed to address the challenge of operational and business model transparency in the alternative asset management industry. 

Complexity aims to provide insight into all the major alternative asset classes, including hedge funds, private equity, real estate, venture capital, and structured asset funds, incorporating approximately 8,300 managers in more than 50 countries, and assigns each of them a high, medium or low complexity profile.
 
It is designed to meet the needs for improved transparency and analysis for all the major industry participants: investors and asset allocators, assets managers, and service providers.
 
"The digital footprint being created by thousands of asset managers continues to expand making it harder to identify the critical data points that can provide insight into operational due diligence and risk management. Until now there has been no unifying product to capture, normalise and structure the kind of information that can give users an insightful and timely view into the complexity of an asset manager's business model," says John Phinney (pictured), chairman and co-president at Convergence. "Complexity Profiling does just that, allowing asset managers and asset owners to proactively protect against risks that may have previously gone undiscovered in a manager's operating model."
 
Complexity captures approximately 2,000 data points per manager, allowing Convergence and its clients to objectively compare manager complexity over time using a consistent set of metrics to track change and identify potential issues. Proprietary algorithms are used to create a "Complexity Profile" based on 40+ un-weighted factors identified in the manager's business model. Profiles are updated daily.
 
A low/medium/high complexity profile is assigned to the asset manager based on the number of high complexity factors present in their business model. Among the factors captured and analysed are internal valuation, self-administration, and qualified audits. Asset managers would be expected to have the infrastructure in place to manage the level of complexity inherent across their organisation.
 
Complexity Profiles are designed to be used for a variety of purposes including fund raising, manager research and selection; ongoing surveillance and due diligence; pricing services and assessing risk, benchmarking versus peers and competitors, and in sales support. Complexity Profiles allow users to pinpoint specific complexity areas where risk exists and where risks have been created since the initial due diligence was conducted.  
 
"Complex operating models do add risk, and unnecessarily complex models can add unnecessary risk," says George Evans, co-president at Convergence, noting that Convergence estimates that as many as 7 per cent of asset managers may be under major operating model stress at any given point. "These potential issues have historically been invisible to investors and allocators. With Complexity, we are bringing unconstrained transparency to the operating risk in each manager's structure and in the industry overall, while also allowing managers to gauge the complexity of their own businesses," he adds.
 
Convergence currently counts among its users many leading fund administrators and auditors, pensions, endowments and foundations, as well as large established and emerging asset managers. With Complexity, it is targeting a market comprised of more than 17,000 registered investment advisers, 58,000 alternative funds, and an expected USD20 trillion in assets by year-end 2020.
 
"If you're an asset manager, you want to know where you have issues compared to your peer groups that might be costing you business. If you're an allocator, you want to identify the best managers, and flag any potential issues early in the process. For a service provider, there's a need to identify where to market your products and price them accordingly. Our research and analytics are designed to provide insight for all these constituencies," says Phinney.

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