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(More customer reviews)This is the one book you want your pension officer to read before he decides what to do with your retirement money. Last year hedge funds did radically better than market indexes and mutual funds. More and more pension plans, insurance companies and other institutions are putting money into these non-traditional investment pools. Hedge funds differ from other types of investment in various ways, but as their name suggests, their main promise is to "hedge" against market risk. The right kind of fund is not correlated with markets, so that when for example the Dow and Nasdaq head south, your hedge investment does not go down with them. How and whether managers achieve this is no simple matter. "Each fund is different," one of the authors in this comprehensive guide writes (p.95). Virginia Parker, the editor of the book, is just the right person to unpack the complex ideas of risk and its management. A recognized authority in the development of specialized performance benchmarks, she tailors and manages portfolios for institutional clients. As a manager of hedge fund managers, she knows the industry inside out. Parker has put together a stellar group of authors. These experienced investors, fund managers, consultants, bankers and brokers present distinct perspectives on the industry. As Parker and Randolf Warsager write in the useful introduction, "This is not a theoretical volume-most of the authors are practitioners..." The book is not easy to get through, however. It is dense with information that requires close attention. Some readers may find it more useful as a reference for specific topics rather than a cover-to-cover read. But if you're willing to put in the effort, there are rewarding insights in every one of the 24 chapters. Here is an example from Parker. In 1998, the year of the Long Term Capital Management debacle, some investors wanted to withdraw their money from certain managers. These managers had invested in Russian bonds, yet "knew little about sovereign risk, Russian politics and Russian counterparties." (p.82) But recognizing the danger did not help the investors. Because of terms they had previously accepted, they were forced to wait several months for redemption of their capital. By that time, "most of the hedge fund assets were gone." This is the sort of thing that gave hedge funds a bad name and led to their being branded as very risky investments. Parker details an approach, using a trading manager, that helps select the right terms and agreement for an investor, reducing the danger of such situations. The other authors also provide practical pointers. As one of them, Tanya Styblo Beder, explains, "What must be avoided are risks that are taken without proper compensation, risks that are left unmanaged, or risks that are too large in relation to the capital." (p.155) The bottom line: For many investors, avoiding hedge funds is at least as risky as investing in them. In these markets, proper hedging can preserve your nest egg. But read the book first. Or make sure your pension officer does.
Chidem Kurdas New York City
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An expansive volume which addresses key hedge fund risk management issues with rigour. The book provides quality information for risk managers within different types of investment structures, such as investment banks, funds of funds, family offices, asset management firms, pension funds, endowments and foundations, and consultancies.
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