Hedge funds handle systemic risk.....

Opalesque London: Alexander Ineichen, managing director at UBS’ Alternative Investment Solutions (Switzerland), author of ‘Absolute Returns: The Risk and Opportunities of Hedge Fund Investing’, ‘Asymmetric Returns: The Future of Active Asset Management’ (Wiley Finance) and of UBS ‘In search of Alpha’ publications, gave a talk on risk management at the Hedge 2008 conference in London last week.

Risk management has been in the spotlight lately as some ponder on its true efficiency whereas others assert it has been successful – especially in the hedge funds arena. But all, managers, regulators and institutions alike, agree it deserves a fresh look. Deloitte & Touche recently issued a white paper (“Risk Management in the Age of Structured Products”) that started: “We believe it is time to take a fresh look at the risk management capabilities of financial institutions and the processes in place to support financial risk management”. Risk management should be viewed “not as a drag on strategy, but as an integral part of a strategic discussion where decision makers look at risk and return collectively.” (securitiesindustry.com)

Risk is really about failure and non-survival
“The good news is that hedge funds have done better than most other investments,” Ineichen started.

Whereas the standard definition of risk involves volatility and tracking of risk, it has become apparent that it should now include ‘non-survival’. Drawing from the biological failures analogy, Ineichen concluded that it was really failure and non-survival that mattered: ‘The Iron Law of Failure appears to extend from the world of biology into human activities, into social and economic organizations. The precise mathematical relationship which describes the link between the frequency and size of the extinction of companies, for example, is virtually i......................

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Hedge funds handle systemic risk.....


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