July 29, 2006
Domesticating the hedge fund market
A recent study conducted by consultants Mercer Oliver Wyman shows that hedge funds have substantially improved their risk management practices in recent years to reduce threats to the financial system and investor losses from fund failure. Wow, now that’s something for an industry that began life as a reckless, wild thing that made immense profits and bigger losses. Sounds like they’ve let go of the fun to make consistent returns.
As per the Mercer study, hedge fund managers and banks that service the industry have made substantive strides in many dimensions of their risk management practices. The study also found an interesting aspect in the working method of hedge funds. According to the study, large established hedge funds make extensive use of sophisticated stress-tests and scenario planning. This is done to offset the likelihood of being forced to liquidate positions in an unplanned or untimely manner. Such an event could threaten market stability and lead to a structural collapse.
--
Did you enjoy this post?
Comments
Post a comment
« Regulation is still the flavor of the season | Main | Hedge Funds: See Saw Industry »
Recent Comments