The risks are often masked. This is an extreme example, but imagine a fund of ultra safe bonds and an investment in Zyanga, Facebook, Twitter, etc. Depending on the make up of the fund that particular funds risk profile may look similar to what might be called a moderate risk growth fund.
Now, a fund buys that fund and puts it with a bunch of other funds and now the risk profile is under another level of obscurity.
Now a manager buys that fund of fund and puts it with other financial products and that's your pension. Basically, the further you get away from the actual investment the more diluted the risk profile becomes. What could potentially happen is that a particular manager is buying products that somehow are invest in a particular sector (perhaps too heavily, and it is masked via the layering) and the sector pops and what he thought was diversity is actually concentrated risk.
Now, a fund buys that fund and puts it with a bunch of other funds and now the risk profile is under another level of obscurity.
Now a manager buys that fund of fund and puts it with other financial products and that's your pension. Basically, the further you get away from the actual investment the more diluted the risk profile becomes. What could potentially happen is that a particular manager is buying products that somehow are invest in a particular sector (perhaps too heavily, and it is masked via the layering) and the sector pops and what he thought was diversity is actually concentrated risk.