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Alternative Market Briefing

EDHEC Risk Paper finds Hedge Funds Disadvantaged by Current Capital Charge Requirements

Friday, January 27, 2012

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Mathieu Vaissié
By Beverly Chandler, Opalesque London:

Mathieu Vaissié, Research Associate at the EDHEC-Risk Institute and Senior Portfolio Manager at Lyxor AM has produced a paper claiming that the Solvency II regulations could be helpful for the hedge fund industry.

In 'Solvency II : A unique opportunity for hedge fund strategies’, Vaissié finds that there is growing evidence that it is ever more difficult for institutional investors to manage their asset/liability balance efficiently, and particularly tricky for insurance companies who face changes in the regulatory framework and in accounting rules.

Vaissié finds that for many institutions, equities exhibit too high a level of risk and the performance potential of bonds is limited over the long run and bonds are no longer necessarily as safe an investment as they had once been considered. "Against this backdrop, insurers - especially those with long-term liabilities - have no choice but to fully rethink their overall investment policies" says Vaissié.

The objective of the Solvency II directive was to better match the risks taken on by insurance firms with their liabilities, thereby allowing them to better evaluate and control their risks.

Vaissié argues in his paper that a Solvency capital requirement of 49% does not accura......................

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