The Open Protocol Enabling Risk Aggregation (OPERA) is a collaborative effort involving hedge fund managers, investors, prime brokers and administrators. A working group has released a template that aims to streamline reporting and provide standardised information in order to create efficiencies for both investors and managers.


Transparency and reporting demand

Telstra Super’s head of alternative investments, Kate Misic, is a keen advocate for the open-protocol reporting system, saying she hopes it is adopted globally as it improves on the current proliferation of reporting methodologies and templates.

Misic monitors four hedge fund managers as part of her role managing alternative assets for the $11-billion fund.

The overseas hedge-fund managers with whom the fund has mandates have taken great strides in recent years to meet the demands of institutional investors for more transparent reporting.

Misic points outs that problems can occur when a third-party risk aggregator then takes that position-level information and crunches the numbers to provide risk reports, with sometimes limited input from the manager. There is the risk that reported positions might be misunderstood or possible hedges of risk positions missed.

“If everybody provides information in consistent format, then it allows someone like me, who is a one-person hedge-fund team to say, ‘OK, here are my hedge fund managers; they have provided information in the same format; I can then aggregate that information and I can understand my portfolio better than getting four different types of reports’,” she says.

Misic describes the open protocol as a “middle ground” because it attempts to balance the needs of investors for transparency with a cost-effective way for managers to meet the growing reporting demands of clients and regulators.


Standardised format

The open-protocol system also gives managers choice in the granularity of reporting they are prepared to provide.

The initiative is being used far more prevalently offshore, with around 40 global hedge funds that are willing to provide open-protocol reporting and more slated to join by the end of the year, according to Misic.

“We should see that the numbers of hedge funds adopting this will be substantial by year’s end and there are even third-party risk aggregators out there who are going to be able to provide that open-protocol report as well.”

“So, if your manager can’t do it but they can provide position-level data and you can then get your third-party aggregator to provide that standardised report, the endgame is that you will be able to get consistent information from all your managers so you can see your portfolio in a standardised format.”

Members of the OPERA working group include Albourne Partners Limited, Citco, Thomson Reuters, Goldman Sachs, Morgan Stanley and public pension fund, Utah Retirement System.


No substitute

Misic was quick to point out that the open-protocol system was not designed to replace the risk reporting that hedge-fund managers already conduct. However, this additional format could provide a better tool for risk aggregation.

“This is not designed to replace what managers’ report to their clients, I understand it is not going to tell the whole picture for a lot of hedge funds. It is more about how can I look at my total portfolio in the most sensible way,” she says.

The template does not change to take into account different strategies. Questions are focused on a range of general areas including counterparty weights, geographical allocations, equity and credit allocations, and liquidity disclosure.

A unique aspect of the open-protocol reporting framework is that it still allows aggregation, despite the various disclosure standards of the underlying hedge fund managers.

Managers can choose three levels of disclosure, with the first being summarised information and the third level providing the most detailed, granular information.

Misic is a speaker at Conexus Financial’s upcoming Sixth Annual Alternatives Conference at Melbourne’s Park Hyatt from September 5 to 6. The session will examine the developments in hedge fund reporting and risk analytics and includes a panel discussion with MSCI executive director HeongWee Chong. Other keynote speakers include the Future Fund’s chief investment officer David Neal, discussing the fund’s innovative hedge fund strategy, and Debra Ng, a partner at Albourne Partners, who will look at how investors around the world are using hedge funds.

Conexus Financial is the publisher of Investment Magazine Online.

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