Pranjal Asset Management markets its multi-asset fund as equity-like return with debt-like risk: 5-year return 11.2% a year, worst drawdown minus 9%. The portfolio shows 22% in unrated or thinly traded bonds priced by a model. Test the claim before a platform lists it.

The claim does not survive: the low drawdown and volatility partly come from stale prices on 22% of the fund. Marked like comparable traded bonds, the worst quarter falls 11.5% rather than 9.0%, and volatility rises from about 5.9% to 7.2%. The same sleeve also supplies a quarter of the return from high-yield credit. The platform should ask for the valuation policy, independent marks and a liquidity profile before listing.

Start with the return, because it tells you what risk the fund is taking. Weighting each sleeve's return gives 45% of 13.0%, 25% of 7.5%, 8% of 9.0% and 22% of 12.5%: 11.2% in total. The model-priced bonds supply 2.75 points, a quarter of the return, from high-yield credit, which is a risk the debt-like label does not describe. A 12.5% yield on unrated bonds is a payment for the chance of default, not a free lunch.

Think of a house price index built only from homes that actually sold. In a slump few homes sell, so the index barely moves while true values fall. A price that updates slowly does not remove a loss; it spreads it out and delays it, so the fund's measured volatility and drawdown look smaller than the risk it holds. Pranjal's model marked its sleeve down 3.6% in a quarter when comparable traded bonds fell about 15%. The fund's reported smoothness is partly an appraisal smoothingThe dampening of measured volatility when assets are valued by models or appraisals that adjust slowly, rather than by market trades. artefact.

Rebuild it line by line. Equity contributed -8.1 points, traded bonds -0.5, gold +0.4 and the model sleeve as marked -0.8: a reported fall of -9.0%. Mark the sleeve like the traded bonds, down 15%, and it costs 11.4 more points on 22% of the fund, -2.5 points of NAV. The honest worst quarter is about -11.5%, and the headline drawdown was measured on prices nobody could have sold at.

Volatility tells the same story. With the sleeve's volatility as reported, about 3% a year, and an assumed correlation of 0.5 with the rest of the fund, the fund's volatility works out near 5.9%. Give the sleeve the 12% volatility of comparable traded high-yield bonds and it rises to about 7.2%. These are illustrative estimates, but the direction is certain: every honest re-marking makes the fund riskier than its factsheet.

Stale prices also move money between investors, as in any valuation error. In a stress, investors who redeem are paid at the smoothed NAV, above what the bonds would fetch, and the fund pays them by selling its liquid assets. If 20% of the fund redeems, the illiquid sleeve becomes 27.5% of what is left. The investors who stay are left holding more of the hardest-to-value bonds, at prices that have not yet caught up.

Before listing, the platform should ask for five things: the valuation policy for the sleeve and how often it is marked; independent prices from a valuation agency against the model's; the issuer list with ratings and any related-party links; a liquidity profile showing how much could be sold in a week; and the drawdown and volatility recomputed with the sleeve marked to comparable traded bonds. If the fund passes those tests, it can be listed with a description that says what it holds: a multi-asset fund with a meaningful high-yield credit sleeve. It cannot be listed as debt-like risk.