Alternative Viewpoints: The Ascendancy of Risk Management
| Apr 30th, 2009 | Filed under: CAIA Alternative Viewpoints Columns, Guest Posts, Today's Post | By: Guest |
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We conclude a week covering hedge fund operations issues with a guest contribution from Abdul Sheikh, CAIA, a Vice President at State Street’s fund administration group. Sheikh makes the case that many attendees of GAIM Ops also made: that independent fund administration may be the only way to fully address investor concerns in the post-Madoff world.
Alternative Viewpoints: The Ascendancy of Risk Management
Special to AllAboutAlpha.com by: Abdul Sheikh, State Street Fund Administration
In the past years, investors used to select fund managers based on three criteria: performance, philosophy and pedigree. But in Deutsche Bank’s annual Alternative Investment Survey released last month (see related post) , “risk management” entered the ranks of the top three selection criteria for the first time, and “pedigree” fell to fifth.
It’s clear that we are witnessing a paradigm shift in manager selection and asset allocation criteria. Gone are the days of just looking at attributes like track records, top down vs. bottom up approaches, low correlations to markets, and manager size. Recent events have shown that investors need transparency, independent risk analysis, and independent asset servicing.
A State Street study conducted late last year in conjunction with the 2008 Global Absolute Return Congress (see related post) reinforces this – indicating that five out of six institutions (84 percent) expect more disclosure of hedge fund positions and nearly half (49 percent) anticipate more frequent reporting from hedge fund managers. Meanwhile, only a few (19 percent) currently receive some level of consistent transparency across hedge fund holdings. (See chart below from report) More…
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