With the growth of interest in alternative investments, pressure continues for increased transparency in the operation of hedge funds. As the essence is to minimise opportunities for organisational stakeholders to experience negative surprise, good governance can only be achieved through complete accountability for the factors that drive: i) the search for investment opportunities and ii) the resolution of investment decisions in the face of risk and uncertainty.
Insofar that the risk universe comprises both quantitative and qualitative spaces, hedge fund managers must be able to describe in a unified manner three key factors:
the element of the whole investment decision-making process that is supported by quantitative model output;
its boundary conditions, ie the assumptions supporting model construction and the limitations of its output; and
how the residual uncertainty is resolved.
The management of quantitative and qualitative risk spaces, each of which provides value in the decision-making process, has become disconnected of late; we introduce 'bounded rationality' as an enabling concept for an organisational architecture that allows for their reunification and the role of brand management as securing its delivery.
