Daily or weekly investor reporting expected to nearly double in five years; More than 90% of hedge funds rely on third-party administrators for risk management support
The study, entitled “Risk Roadmap: Hedge Funds and Investors’ Evolving Approach to Risk,” uses qualitative and quantitative data collected from the Chief Risk Officers (CROs) of leading global hedge funds, institutional investors, prime brokers, and other industry participants. The data demonstrates the industry’s increasing focus on risk management and transparency. According to survey results, hedge funds project that five years from now 41% of investor reporting will be published daily or weekly, up from 22% today and just 12% in 2007.
“Today’s hedge funds are operating in a dramatically different environment than five or ten years ago, dedicating more resources to risk management and communicating more frequently with investors,” said
“Investors are increasingly taking a ‘trust and verify’ approach to a hedge fund’s reported risks and exposures. As a result, hedge fund managers have augmented their reliance on independent, third-party administrators and will continue to do so,” said
“Risk has always been central to the investment process, but we are definitely seeing an increased focus on risk from both hedge fund managers and investors,” added
As new international regulations, including Basel III, the Dodd-Frank Act, and the European Market Infrastructure Regulation bring about significant changes to risk management practices, the study demonstrates that hedge funds today are “increasingly more willing to tell their story in plain language with a keen focus on sharing and explaining their risk approach.” Hedge funds are dedicating more resources to risk management and working to ensure the independence of risk managers, which is a best practice sought by institutional investors. More than 91% of hedge funds surveyed rely on a third party administrator in some risk management capacity.
Other significant findings included:
- 79% of firms now separate their risk manager and fund manager functions entirely to ensure independent oversight.
- Firms manage liquidity risk most explicitly – 55% treated liquidity risk with the highest importance.
- 60% of the larger hedge fund managers now have a dedicated risk management function.
- 84% of hedge funds use off-the-shelf risk analytics in their portfolio management or trading systems.
The study also identified 14 different types of risk that confront hedge fund managers and investors. These range from the liquidity, volatility and credit risks faced by most funds to such concerns as currency, commodity, and “meta” risk – the latter of which captures all the qualitative risks that can’t be easily measured, such as human and organizational behavior, or moral hazard.
About BNY Mellon
BNY Mellon is a leading administrator of alternative assets, including single manager hedge funds, funds of hedge funds, and private equity, with more than
HedgeMark is an independent hedge fund managed account and risk monitoring platform and an affiliate of BNY Mellon. The platform features a broad range of investment strategies managed by many of the industry’s leading hedge fund managers. The funds management program is supported by a fully-integrated suite of risk and performance analytics, which include portfolio construction, back-testing, stress testing, and scenario modeling tools. Analytics are based on daily, position-based reporting that enables our clients to analyze sources of portfolio risk and performance on an aggregate level. Through the HedgeMark platform, users can build, analyze, and monitor their investments while using a proprietary surveillance engine to ensure that investments are managed in accordance with written guidelines and objectives.
|Copyright:||Copyright Business Wire 2012|
|Source:||Business Wire, Inc.|