Hedge Fund Risk Assessment

Risk assessment and valuation of hedge funds are challenging tasks because of the unique hedge fund problems deriving from the lack of transparency, numerous biases and vague regulations. Most of conventional valuation frameworks used by traditional managers for ages become hardly applicable when it comes to hedge funds. Not surprisingly, investment vehicles built on such valuation techniques lead to a weak performance and unpredictable risks.

Hedge Fund Valuation Challenges

• Inapplicability of the mean-variance methodology because of non-normal return distributions of hedge funds
• Inapplicability of the CAPM because of the non-convexity of the Efficient Frontier
• Low or even negative correlations with the corresponding strategy indices
• Non-transparency of hedge fund holdings
• Biases in hedge fund data
• Short return series

What We Can Do For You

• Conduct comprehensive risk valuation, covering market, credit, concentration, liquidity, strategy, operational, legal, and fraud risks
• Perform quantitative risk assessments using traditional and advanced metrics, such as VaR, MVaR, CVaR, tail risks, skewness, kurtosis, Hurst, and more
• Drill-down into manager performance attribution and style analysis
• Conduct extreme event and correlation stress testing
• Conduct dynamic style analysis to detect shifts in manager style over time and expose potential strategy discrepancies
• Perform Peer Group Analysis across diverse subsets of the hedge fund universe
• Perform dynamic analysis of risk-return profiles
• Utilize best-fit distribution analysis and stochastic simulation to assess fund performance

Take a look at the examples of single fund risk reports: Satori AlphaOne, Renaissance Institutional Equities Fund (RIEF).