In Japan, hedge funds are subject to the highest degree of regulation in Asia, but risk management remains an inscrutable practice. In America, implementation of Basel II is hardly witnessed. In Western Europe, it is not present at all.
Yet it is alive and kicking in Japan, and three of the megabanks command IRB status under the Basel II rules. That means the directors of those banks are supposed to understand the nuances of its risk implications. Assuming that they do understand their risk portfolios might be a case of 'Emperor’s New Clothes'. The knee-jerk reaction to Basel II caused a flight from hedge fund investment last year.
