Volatility Laundering…

Amar Pandit , CFA , CFP

I believe you would have heard the term Money Laundering, but have you heard the term volatility laundering?

Can you guess what that is?

While it comes in various flavours, one that has made its way in fund manager lexicon is connected to the practice of many fund/portfolio managers especially in the private markets.

Morningstar stated, “Volatility laundering is a somewhat derisive term that picks on funds that buy private investments. The thinking goes that they don’t actually have lower risk than funds that trade in public investments – they simply force the investors to ignore that volatility by hiding it from them.”

It’s far more common than you think it is. Investors do this too to comfort their minds.

Can you think of areas where this phenomenon is at play?

I am curious to hear your responses on this one.