The fine art of spotting and measuring hedge fund risk

Many investors return to the same tools and metrics when analysing hedge fund risk, but a growing body of academic research is suggesting the most tried and tested tools may not always be the best

When investing in hedge funds, the control of risk should be of primary importance, while gaining some return in excess of the risk-free rate should only be a secondary objective.

Many investors tend to forget this basic principle, and therefore end up holding alternative portfolios that do not match their risk/return expectations. One should always remember that risk, by itself, is not bad - it normally implies gaining some risk premium.

What is bad is a risk that is misunderstood, or even worse

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