Protecting alpha, preventing omega

The process by which hedge funds do business is under increasing scrutiny from both regulators and investment institutions. Getting it right at the outset is essential if the industry is to develop. By Anthony Cowell

The hedge fund industry is at a point of inflection. A lack of transparency is regularly cited as the primary reason for hedge fund failures, closures and financial losses, but it is the strength of the underlying operational processes that can provide additional insight into the sector’s longevity.

Hedge fund managers must begin to give prominence to processes that mitigate operational risk while continuing their search for alpha. This does not mean breaking their code of secrecy, but rather