This article was authored by Charles T. Hage. Mr. Hage is currently
Compliance Officer at U.S.-based firm Mohican Financial Management, LLC.
During his career he has reviewed financial performance measures in
alternative investments and managed financial risk in corporate
Need for Truth
The hedge fund industry is seriously short on how it treats the subject
of risk. Especially in times when challenging economic and financial
conditions call for high standards of professionalism to achieve
success, the industry should be fine-tuning all its mechanisms. Instead,
in the core subject of portfolio risk, the hedge fund industry clings to
misconceptions, is less than honest with itself, and misleads investors.
The industry should rethink the role of risk in the hierarchy of
investment decisions, embrace universally valid measures of hedge fund
performance, and inject responsibility into the system for screening
This paper is intended to explain why and how we need to rethink risk,
and to suggest that if we do, the result can be to allocate capital to
hedge funds more productively and profitably.
Before proceeding, note that GIPS (Global Investment Performance
Standards) are designed to fairly represent and fully disclose to
investors the performance information of a firm in aggregate. GIPS is
concerned with how to value assets and calculate returns in all accounts
managed by the firm, to ens......................
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