With some form of hedge fund adviser regulation a virtual certainty, the consequences for hedge funds in terms of risk management are clear. Part of any broad-based registration requirement is the need for hedge fund managers to show that they have the proper risk management infrastructure in place, including systems to measure risk, enforce risk policies and procedures, and support a chief compliance officer.
But no matter what happens with regulation, investors are already demanding that hedge funds show they have robust risk management tools in place in areas like portfolio pricing, valuation and counterparty risk. They are understandably anxious to avoid a repeat of 2008, when investors on average lost almost 20% of their investments in hedge funds.
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