Managing Hedge Fund Risk and Financing: Adapting to a New Era

Chapter 4

Analysis of the Risk/Return Profile of Hedge Fund Strategies

In Chapter 3, we surveyed the primary hedge fund strategies and described their implementation. In addition, we presented an integrated risk management model, developed a detailed lexicon of hedge fund risk types, and the primary strategies and techniques for managing these risks. The following chapter goes deeper into the specific risks of each strategy by prioritizing each risk type according to its frequency of occurrence and magnitude of potential loss. Real-life examples are presented and discussed.

The performance of each strategy as represented by industry standard hedge fund return indices is statistically analyzed to characterize each strategy's performance over time, with particular focus on the recent credit crisis in 2008.

Collectively, the information in Chapters 3 and 4 can be used to customize a hedge fund risk management strategy to an individual fund's specific risks.