A Framework for Evaluating Hedge Fund Risk

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Hedge funds are a large and increasingly important part of the investment management landscape, controlling in excess of $2 trillion. They have many unique attributes, relative to long-only mutual funds and pension funds. Some of these attributes include leverage, concentration, illiquidity, and a lack of transparency. Accordingly, standard
metrics that apply to the long-only space may not adequately measure hedge fund risk.

Author: John M. Longo, Ph.D., CFA, Rutgers Business School

Hedge fund are a large and increasingly important part of the investment management landscape, controlling in excess of $2 trillion. They have many unique attributes, relative to long only mutual funds and pension funds. Some of these attributes include leverage, concentration, illiquidity and a lack of transparency. Accordingly, standard metrics that apply to the long only space may not adequately measure hedge fund risk.

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