Bringing Investor Confidence Back to Alternative Investments: How Enterprise Risk Management is the Answer

23 Pages Posted: 5 Mar 2010

Date Written: January 24, 2007

Abstract

The concept of enterprise risk management will be examined in the context of multi-strategy hedge funds and fund of hedge funds. This paper seeks to demonstrate that risk at these organizations has to be considered holistically and not in “silos”. A number of qualitative and quantitative tools will be suggested and their use will be demonstrated on such hedge funds as Amaranth. The result of implementing these tools will show that the risks in these funds were increasing months prior to their blow-ups. This finding will be used to demonstrate the need for qualitative filters at fund of fund investment committees to suggest redemption even though returns have not suffered. Having outlined the ERM concept for hedge funds and some tools that could be used to implement it, it will be shown how implementing ERM can lead to a less risky portfolio that should lead to greater investor confidence and a more stable business model.

Keywords: Hedge Fund, Fund of Fund, Risk Management, ERM, Enterprise Risk Management, Style Analysis, Optimization, risk

JEL Classification: C00, G00, G10, G11, G21, G23, G24

Suggested Citation

Olszewski, Jan, Bringing Investor Confidence Back to Alternative Investments: How Enterprise Risk Management is the Answer (January 24, 2007). Available at SSRN: https://ssrn.com/abstract=1564384 or http://dx.doi.org/10.2139/ssrn.1564384

Jan Olszewski (Contact Author)

Perella Weinberg Partners

401 Congress Ave
Suite 3000
Austin, TX 78701
United States

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