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Hedge Fund Risk Fundamentals: Solving the Risk Management and Transparency Challenge by Ramon Koss, Richard Horwitz

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CHAPTER 9

Non-Market Risk Management

This book primarily focuses on market risk, risks related to the market performance of the holdings in the portfolio. These are the only risks for which the market compensates investors. In Chapter 8, the unique personality risks related to hedge funds are discussed. However, these risks manifest themselves through poor performance and, as such, should be viewed as a type of market risk. Unfortunately, there are myriad other uncompensated risks that can result in losses. These risks include:

  • Fraud
  • Errors
  • Business interruption
  • Embezzlement
  • Forced liquidations
  • Credit losses
  • Misvaluations

In a recent research paper entitled “Understanding and Mitigating Operational Risk in Hedge Fund Investments,”1 a proprietary ...

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