“The main reason investors struggle with how to react to bad news is that they really haven’t figured out why they own the stocks they own.” – Bill Nygren, Oakmark Fund
I have read several articles, like this one from Securities Industry News, over the past month discussing the coming trends of transparency. The article explains, “Several hedge funds and their administrators are adopting enhanced systems aimed at fulfilling expected compliance requirements for more transparency and meeting heightened demands from investors to communicate portfolio information quicker and with more granular detail. The idea is to allow managers quicker screen-based views into their own trading and money management processes.” So effectively what we are saying is that if we had daily information we would have caught the overt risk or fraud that we could not catch with quarterly data. Sure, if you are now getting position level detail where you had veiled aggregate data before, you can isolate risk. But, it seems that the positions themselves are only a portion of transparency.
True transparency, for the investor and the fund manager, comes from ensuring that you understand why you chose the assets that reside in your portfolio and how you determined their position size. This level of transparency is not something that reporting alone can expose because, for an overwhelming majority of firms, that critical information sits in the portfolio manger’s head and disparate Excel, Word, and email files. Transparency requires understanding more than “I have a position.” It involves, “why I have a position.” Firms must adopt strategies to help codify their investment process and better explain to themselves (so that they can explain to investors) why they are making the decisions that they make. Alpha Theory has developed a framework, that embodies the best practices of great money managers, to provide “True Transparency” into every portfolio decision a fund manager makes.
