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

by David P. Belmont

Overview

Hedge fund investors and managers must learn the lessons of the credit crisis or be doomed to repeat them. Drawing on his unique “in the trenches” perspective as the risk manager of a leading prime brokerage through the crisis and his own hands-on hedge fund risk management experience, Managing Hedge Fund Risk and Financing illustrates the risks faced during the credit crisis by actual hedge funds. David Belmont distills lessons regarding the evolution of hedge fund risk management by highlighting the risk management practices of those that survived and combing the wreckage of those that failed.

Starting with the perspective of the hedge fund as a fragile enterprise, Belmont comprehensively defines the interrelated risks facing hedge funds and presents a holistic risk management approach that focuses on investment risks while integrating funding, counterparty and operational risks. He details the likelihood and impact of each risk by hedge fund type, and analyzes hedge fund performance through the crisis to establish the risk management priorities for each hedge fund strategy.

Using game theory and insight into the self-interest of hedge fund managers, investors, and creditors, Belmont defines realistic strategies for counterparty and funding risk management. He illustrates how funding and counterparty risks can be mitigated and the solvency of a hedge fund protected in a crisis through careful negotiation of legal documents with brokers and investors.

Product Details

ISBN-13:	9780470827291
Publisher:	Wiley
Publication date:	08/17/2011
Series:	Wiley Finance , #680
Sold by:	JOHN WILEY & SONS
Format:	eBook
Pages:	320
File size:	2 MB

About the Author

David Belmont has over 19 years of buy side and sell side risk management experience gained as a Chief Risk Officer, hedge fund risk manager, hedge fund investor, and a hedge fund lender. David is currently the Chief Risk Officer for Commonfund, a manager of US$27 billion of long term client assets across hedge funds, private equity, real estate, commodities, fixed income and equities. Previously, David was the Head of Risk Management for Temasek Holdings, the Singapore sovereign wealth fund, where in addition to risk-managing the direct investing, Private Equity, and long-only investments, David risk-managed Temasek’s internal hedge fund strategies and its third party hedge fund investing. Earlier in his career, David was the risk manager for Cargill’s Financial Markets Group, the precursor to the multi-strategy hedge fund, Black River Asset Management. Subsequently, David was the Director of Risk for Nexgen Capital, a closely held hedge fund active in emerging markets, credit arbitrage, volatility arbitrage, and natural catastrophe bonds.

David’s sell side experience comes from his recent role as Global Head of Hedge Fund Risk Credit at UBS Investment Bank and as Head of Risk Management for UBS Prime Brokerage in the Americas.

David holds Master of Business Administration and Master of Science degrees from Yale University and is a Chartered Financial Analyst.

Table of Contents

About the Author ix

Acknowledgments xi

Introduction: Managing Complexity and Uncertainty xiii

Chapter 1: The Quick and the Dead: Lessons Learned 1

Chapter 2: An Integrated Approach to Hedge Fund Risk Management 33

Chapter 3: A Survey of Hedge Fund Strategies and Risks 83

Chapter 4: Analysis of the Risk/Return Profile of Hedge Fund Strategies 143

Chapter 5: Managing Funding Risk 239

Chapter 6: Managing Counterparty Risk 299

Chapter 7: Risk Management for Hedge Fund Investors 315

Chapter 8: Conclusion 345

Appendix 1 349

Appendix 2 353

Appendix 3 355

Index 361