Risk - A Part Of Hedge Fund Protocol
The words “risk” and “hedge funds” go hand in hand so investors logically assume there is risk attached to any investment product and hedge funds are no worse or better than most other assets. That’s why many hedge fund risk analysis courses provide education to help you understand the built-in risks in using hedge funds and provide practical strategies to reduce your expose.
To start off, you must understand that differences exist between hedge fund investment and traditional investment. That’s why many decry the credit crunch and promote diversification as a risk management tool.
Since history can be a painful teacher, any good hedge fund risk analysis course should delve into the real issues behind some of the recent hedge fund blow-ups and what you can learn from them. Oftentimes the blow-ups were the result of lacking due diligence and limited (and infrequent position) transparency.
According to Richard Wilson of http://richard-wilson.blogspot.com/2008/05/hedge-fund-risk-analysis.html, “When discussing risk management in the hedge fund industry, obtaining a clear definition of the different types of risk exposure for each kind of hedge fund is important. Considering the wide range of objectives and diverse trading instruments used by each specific type of hedge fund, it is important to note the varying risk concerns which apply to different types of hedge fund managers.”
Developers Jaeger and Säfvenblad helped define the different risk exposures by each type of hedge fund so with an investor’s perspective it should be clearer, for both hedge fund managers and investors, how to uncover the different dimensions of risk present in each hedge fund portfolio which subsequently becomes the first step towards managing risk effectively.