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How Hedge Fund Managers are making Strategies to Minimize Risks

Banking CIO Outlook | Monday, November 18, 2019

While managers of hedge funds always deal with risky ventures, some practices may boost the possibility of minimizing risk and generate maximum returns for investors.

FREMONT, CA: Hedge funds are the pool funds that carry colossal opportunity as well as investor risk. Since hedge fund managers can invest in nearly anything from stocks, real estate, currencies, and derivatives, investments are subject to substantial risk factors. In the event of a financial crisis, other hedge fund managers often use the money of investors to amplify returns. Such a practice can result in unsustainable losses in the event of a failure of investment performance.

Making Better Investment Decisions 

Hedge fund managers can maintain transparency by periodically updating investors on investment strategies, potential risk of investing in a fund, products and terms, and potential breach of privacy. Hedge fund managers should also brief investors on the fund's results and material developments. An informed shareholder will be able to understand potential risks and make better investment decisions.

Monitoring Fund's Valuation Policies 

Hedge fund managers need to set up an evaluation committee to monitor the valuation policies and procedures of the fund. The valuation policy of a fund includes stakeholders in the valuation process, investment type valuation standards, internal documentation procedures, and ways of countering potential conflicts in the valuation process. Hedge fund managers should also incorporate specific investment policies that, due to the complexities involved, are difficult to assess. Top Wealth Management Technology Solution Companies

Develop Comprehensive Accounting Status 

For purposes such as core infrastructure and operational needs, hedge fund managers need to develop policies to manage the margin, cash, and collateral requirements of the fund. Hedge fund managers are also advised to have systems, processes, and employees that can match the equivalence of the complexities involved in the trade. Also, effective policies and staff must be in place to manage and develop the fund's comprehensive accounting status and to counter risk through appropriate business continuity plans.

Working on the above guidelines would allow managers of hedge funds to curb the risks involved dramatically. In turn, hedge fund managers will be able to provide related investors with a higher level of accountability.

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