Look-through approach

Treating a fund holding as a single line would let the wrapper decide the capital. Two funds of the same name and value, one invested in sovereign bonds and the other in emerging market equities, would consume the same capital. The look-through approach forbids that. The undertaking must apply regulatory shocks to the fund's underlying assets, line by line, as if it held them directly. Where the detailed composition is unavailable, a grouped approach based on the target allocation is permitted under conditions; the undertaking then takes the most prudent assumption on the unidentified share. Absent any information, the line gets the treatment of type two equities, deliberately punitive. The operational consequence is heavy, and finance departments often discover it late. The manager must supply a detailed inventory at each closing, in a usable format. Vehicles that refuse that transparency are effectively ruled out, whatever their headline return.