CHAPTER 15

Risk Due Diligence

An important part of the manager selection process is the risk due diligence. It is through this process that a potential investor assesses whether a fund both understands and controls its risk.

The primary focus of a risk due diligence should be on market risk, the most significant risk to which an investor is exposed. The first step is to interview the portfolio manager to see if she fundamentally understands her risk. Portfolio managers should be able to:

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Articulate the overall strategy. Ask: How is technical and fundamental research translated into a decision to enter a trade? What risks are you targeting? What ...

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