Hedge funds' lack of op risk disclosures a concern

Daily news headlines

LONDON - A survey published by French business school Edhec has highlighted concerns of hedge fund investors about disclosure on liquidity and operational risk exposures at hedge funds even before the Madoff scandal was made public.

The Edhec Hedge Fund Reporting Survey, which targeted 214 hedge fund managers, fund of hedge funds and hedge fund investors in the summer of 2008, found that 80% of respondents felt liquidity risk was not sufficiently captured in hedge fund reporting. Some 92% of respondents stated the quality of hedge fund reporting was an important signal of a fund's overall quality and pivotal to investors' decisions about hedge fund investment. But the information disclosure was viewed as inadequate by investors with information on fund liquidity and operational risk exposure viewed as incomplete.

The industry views issues related to the pricing and valuation of hedge funds (identified by more than 76%) as the most crucial elements of operational risk reporting. Information on internal risk management (60%) and internal controls (48%) are also seen as major aspects. When asked whether the information provided on operational risk is sufficient or meets their demands, investors reply that exactly those aspects that are considered most important are those that are considered most wanting; that is, information on a fund's valuation framework and on the internal controls a fund puts in place.

Liquidity risk is considered a major source of risk for hedge funds, especially for hedge fund investors - more than 80% of respondents classified this source of risk as "very important" yet the current coverage of liquidity risk in hedge fund disclosure is described as insufficient by the majority of investors.

Edhec also commented that guidelines and best practices issued by industry associations such as the Hedge Fund Standards Board and Alternative Investment Management Association fell short of providing sufficient guidance on hedge fund disclosure.

"These guidelines... rarely provide guidance on sound hedge fund disclosure. Many of the guidelines are vague and cover topics that are already standard disclosure," the survey said.

A copy of the survey can be downloaded here:

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

Investment banks: the future of risk control

This Risk.net survey report explores the current state of risk controls in investment banks, the challenges of effective engagement across the three lines of defence, and the opportunity to develop a more dynamic approach to first-line risk control

Op risk outlook 2022: the legal perspective

Christoph Kurth, partner of the global financial institutions leadership team at Baker McKenzie, discusses the key themes emerging from Risk.net’s Top 10 op risks 2022 survey and how financial firms can better manage and mitigate the impact of…

Emerging trends in op risk

Karen Man, partner and member of the global financial institutions leadership team at Baker McKenzie, discusses emerging op risks in the wake of the Covid‑19 pandemic, a rise in cyber attacks, concerns around conduct and culture, and the complexities of…

Moving targets: the new rules of conduct risk

How are capital markets firms adapting their approaches to monitoring and managing conduct risk following the Covid‑19 pandemic? In a Risk.net webinar in association with NICE Actimize, the panel discusses changing regulatory requirements, the essentials…

Building resilience into ESG risk management

Risk and resilience continue to play an important role in the navigation of an increasingly uncertain world. Fusion Risk Management explores why it is equally crucial for technology to support organisations in addressing pertinent environmental, social…

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here