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This report focuses
on hedge fund investors concerns with risk. It examines: who
the respondents are, how much money they represent, how they
select hedge funds, what their perceptions of the risk are,
what disclosures they require, how they measure risk and performance
and why they'd exit a fund.
- 86 investors responded from over 15 countries, most of
whom managed over $100M of assets
- The respondents have $25B of assets in hedge funds in
2002, equating to about 5% of the total hedge fund capital
worldwide
Respondents expressed their opinion on the importance of
twenty-nine different risks, with the top five shown in Table
1.1.
Table 1.1 Top Five Risk (N=86)
| Rank |
Risk |
| 1 |
Volatility |
| 2 |
Personnel |
| 3 |
Leverage |
| 4 |
Fraud |
| 5 |
Accounting |
| Source: Ecronin, July 2002
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- The backdrop of fluctuating markets, and accounting irregularities
at publicly traded firms are affecting investors - volatility
and accounting risk are in the top five.
- Fraud is seen as an ever-present danger to investors in
this loosely regulated world
- Leverage is perceived as a key risk to investors, and
as a vital disclosure requirement. Its measure is viewed
as one of the key hedge fund risk measurements.
- The experience of the managers is a key reason for investors
to select a fund. Once invested, though, personnel risk
is perceived as hugely important to investors and a change
in management is a key reason for investors to exit a fund.
- Most respondents do not use an investment advisor and/or
manager to pick hedge funds, they usually select the funds
themselves
- Investors believe that the manager's experience and the
funds performance are the most important criteria when selecting
a fund, and a change in either may cause investors to consider
exiting a fund
- Investors used a variety of methods to diversify their
hedge fund portfolios, but the fund of hedge fund route
was the most popular.
- Leverage ratio and liquidity measure are the key risk
measures
- The relative importance of risks and risk measures varied
quite considerable, particularly so for large investors,
small investors and those who diversify by fund of fund
approach when compared to the overall average.
For a full copy of this thesis please contact Evelyn Cronin
at Eurekahedge on information@eurekahedge.com
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