Capital adequacy allocation is not yet a legal requirement for hedge funds, but given the increase in global investigations, the high failure rate and lack of consistent benchmarking standards, the idea of financial reserves and enforced operational risk management are appealing prospects for the hedge fund investment community.
Most hedge funds have superficial risk management but very few apply a thorough operational risk methodology. Independent consulting risk manager, Armelle Guizot, presents in-depth classifications of the range of operational and systemic risks and provides you with a benchmark to allocate capital reserves to support them.
Based on Guizot's operational and market risk experience gained through working with high profile clients such as JP Morgan, Sumitomo Mitsui and Merrill Lynch, you will find that this report:

• covers all the major operational and regulatory risks associated with hedge funds;

• provides infrastructural risk maps;

• introduces a simple methodology to calculate capital adequacy;

• incorporates industry risk management surveys to benchmark against peers;

• encourages fund managers to think ahead.

This essential report provides hedge fund managers with a complete set of risk principles and standards to avoid operational risks and potential financial losses. At the same time it proves a valuable resource for those without advanced quantitative knowledge, allowing you to quickly grasp the hidden risks of hedge funds.

Contents

Author Biography

List of Figures

List of Tables

Introduction

1 Definitions and Historical Developments of Hedge Funds

2 A Basic Review of Hedge Fund Trading Strategies

3 The Growing Case for Operational Risk Management in Hedge Funds

4 Operational Risk Definitions in Hedge Funds

5 Basic Market Risk Management Formulas and Framework

6 Hedge Funds' Integration into the Basel Operational Risk Framework

7 A Qualitative Rating Methodology to Evaluate Internal Controls

8 Risk Management Standards and Guidelines

Appendix 1: Hedge Fund Survey (2006-07)

Appendix 2: Hedge Funds Qualitative Rating

Benchmarks with Industry

Standards

References and Research Websites

Index

Armelle Guizot worked as an independent consulting risk manager at JP Morgan, Sumitomo Mitsui, Asset Alliance Corporation, Bank of America, IRMG-AON and Merrill Lynch. She holds a master's degree in operations research from Cornell and is a graduate of West Virginia State University. Besides consulting, she writes on market and macro-economically related issues.