Hedge funds prepare for their revival

Industry overhauls technology and processes to restore confidence and win back clients. Battered but not beaten, many hedge funds will make a comeback from the financial turmoil. But analysts say they will need to improve the technology and processes they use to make investors feel secure.

Cautious institutional investors are demanding that hedge funds use multiple prime brokers with the relevant aggregation technology, real-time risk management and stress tests, and provide transparency and accounting reports for clients. However, for many funds, the extra spending required comes at a time when net asset values, fees and revenues are falling. Keith Bliss, senior vice-president of sales and marketing at agency brokerage Cuttone & Company, said: “Any hedge fund that wants institutional money will have to have systems for trading across multiple accounts with real-time risk management functionality. It is part of the institution’s RFP [request for proposal], the first page of the checklist.”

The article is on :
http://www.wealth-bulletin.com/home/content/1053777199/

Complimentary EDHEC survey: investment managers claim to lack sufficient knowledge to manage risk optimally

The feedback received from the industry confirms that industry practitioners are largely convinced of the benefits of advanced portfolio construction techniques. In their view, the main barrier to widespread adoption of these techniques is the lack of knowledge in the industry, not implementation costs or a lack of client interest. 95% of the practitioners who responded share EDHEC's opinion that improvements need to be made to portfolio construction practices. Even though the recent events in financial markets are likely to increase investors' needs for portfolio construction that take into account extreme market scenarios for various asset classes, investment managers do not fully take into account extreme risks when constructing portfolios. They also fail to employ techniques that avoid generating overly-concentrated portfolios because of poor input estimation.

The study is available on :
http://docs.edhec-risk.com/mrk/090313_Publication/EDHEC_Publication_Portfolio_Construction.pdf