Study Shows need for Improvement in Hedge Fund Risk Management

Turning from corporate risk to personal investment risk, the survey also asked financial executives about their feelings on hedge funds. Extremely popular today, hedge funds now number more than 8,000. The growth of these largely unregulated investment vehicles has been considerable, more than quadrupling their assets since 1999. Today hedge funds manage close to $1 trillion.

Nearly all respondents, 92 percent, feel leery about hedge funds.  Reporting they do not have any of their personal funds invested in hedge funds. Accordingly, 94 percent of respondents feel hedge funds should be required to have a higher-level of transparency.

Respondents report that hedge funds should annually be required to report such things as portfolio breakdown, their asset type, market cap, and industry allocations.  A bright spot in the research study revealed across the board increases in enterprise risk preparedness during 2006 over 2005. In fact, 85 percent feel prepared for financial-reporting risk, up from 78 percent in 2005, 84 percent feel prepared for credit/market risk, up from 68 percent in 2005, and 77 percent feel prepared for strategic risk, up from 54 percent in 2005.

The number of positions in hedge funds should also be reported, according to 53 percent of those surveyed.  52 percent of the respondents believe that leverage should be reported both at the time of the audit and the maximum amount used at any point during the year.