Staying In Control Of The Risks
December 01, 2002
Understanding the risks in a portfolio may seem daunting given the difficulties of managing data but Paul Dackombe, director of business development at Reech Capital, says that it can't be shirked
Funds of hedge funds are experiencing increasing pressure to employ effective risk management processes. Risk analysis lets the fund provide investors with a better idea of the risks the underlying managers are taking. When used with performance data it can provide a more meaningful assessment of the manager's risk-adjusted return.
A VAR-based approach can provide a meaningful comparison of risks across different asset classes and instruments. It is therefore ideal for analysing the diverse strategies in a typical fund of funds portfolio. So why are some funds not embracing such practices when the benefits to them and their investors are so clear?
The answer is that many find the prospects daunting. They can't work out how to make sense of the underlying data that they are getting from hedge funds in a variety of formats and with varying degrees of transparency.
However daunting the task, fund of funds managers will...
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