In the sometimes bewildering world of alternative investment, obtaining clear ideas on how complex an area is - often a key risk - is important.

US fintech firm Convergence has launched a service that ranks private equity, hedge funds and other alternative investments in terms of how complex or simple they are, helping wealth managers avoid problems amid an explosion of often confusing data.

The service is called Advisor Complexity Profile and incorporates about 8,300 managers in more than 50 countries. It assigns a high, medium or low complexity profile to each manager.

“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,” John Phinney, Chairman & Co-President at Convergence, said. 

“Until now there has been no unifying product to capture, normalize 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,” Phinney said.

The service captures about 2,000 data points per manager. Proprietary algorithms are used to create a “complexity profile” based on 40-plus 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 analyzed are internal valuation, self-administration, and qualified audits.  

“Complex operating models do add risk, and unnecessarily complex models can add unnecessary risk,” George Evans, co-president at Convergence, said. He said his firm 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 added.