Risk Roadmap: Hedge Funds and Investors’ Evolving Approach to Risk (BNY Mellon, Managed Funds Association, HedgeMark International. LLC)

September 2012

KEYWORDS: AIFMD, asset/liability matching risk, Basel III, basis risk, BNY Mellon, chief risk officer, commodity risk, common holder risk, correlation risk, counterparty risk, credit risk, currency risk, Dodd-Frank Act, due diligence, EMIR, equity risk, event risk, Form PF, hedge fund infrastructure, hedge fund investor, Hedge Fund Managers, Hedge Fund Performance, Hedge Fund Research, HedgeMark, Institutional Investors, Liquidity, liquidity risk, market data, meta risk, portfolios, reputational risk, risk analytics, risk management, risk manager, Survey, Third-party administrator, transparency, velocity risk


BNY Mellon

  • BNY Mellon, Managed Funds Association, HedgeMark International. LLC


These continue to be challenging times for hedge fund managers. Regulatory scrutiny is up, public understanding remains low, and even institutional uncertainty about the global economy has negatively impacted the industry. The hedge fund manager must now tread ever more carefully between the concentric boundaries of risk aversion and risk acceptance to achieve goals consistent with a particular fund’s stated purpose, pedigree, and assets. It is beyond question that the credit crisis of 2007-09 dramatically highlighted the importance of scrutinizing, re-assessing, and enhancing risk management practices throughout the entire financial sector, including hedge funds. Monumental losses at global banks, together with losses across all sectors of the institutional investor base, made for a “sea change” in how enterprise-wide risk management is conducted, evaluated, regulated, and, most importantly, effectively demonstrated by asset managers and financial institutions entrusted by investors to manage their money. Hedge fund managers recognized an even greater need to better segregate the risk management functions and to provide added scrutiny over portfolio construction and the individual positions initiated by investment staff. Specialized risk systems that model specific assets classes help fund managers better understand the inherent risks in their overall portfolio. In addition, greater technological advances have afforded managers the ability to make appropriate portfolio changes and to react swiftly to dynamically changing markets, thus helping to mitigate the depth of losses in times of extreme market distress.

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