Page "Hedge fund" Paragraph 53

Investors in hedge funds are, in most countries, required to be sophisticated qualified investors who are assumed to be aware of the investment risks, and accept these risks because of the potential returns relative to those risks.

Fund managers may employ extensive risk management strategies in order to protect the fund and investors.

According to the Financial Times, " big hedge funds have some of the most sophisticated and exacting risk management practices anywhere in asset management.

" Hedge fund managers may hold a large number of investment positions for short durations and are likely to have a particularly comprehensive risk management system in place.

Funds may have " risk officers " who assess and manage risks but are not otherwise involved in trading, and may employ strategies such as formal portfolio risk models.

A variety of measuring techniques and models may be used to calculate the risk incurred by a hedge fund's activities ; fund managers may use different models depending on their fund's structure and investment strategy.

Some factors, such as normality of return, are not always accounted for by conventional risk measurement methodologies.

Funds which use value at risk as a measurement of risk may compensate for this by employing additional models such as drawdown and " time under water " to ensure all risks are captured.