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Melvyn Teo By Beverly Chandler, Opalesque London:
Melvyn Teo, Professor of Finance and Director, BNP Paribas Hedge Fund Centre at the Singapore Management University has produced a study of the risk exposures of Asia-focused hedge funds and how they have adjusted their risk exposures in response to the recent financial crisis. Teo has looked at fund performance relative to an augmented Fung and Hsieh
(2004) model, and found that Asia-focused hedge funds have broadly trimmed risk exposures post crisis.
Teo believes that they have reduced their exposure to small stocks relative to large stocks, scaled back
their loadings on high yield corporate bonds relative to low yield U.S. sovereign debt, and pared
their allocation to the Japanese equity markets. At the same time, however, they have raised their exposures to Asian equity markets. Teo says: "The global financial crisis of 2008 marked a pivotal shift in the way investors think about hedge
fund risks. Re-hypothecation and the Lehman Brothers collapse brought to fore the importance
of counterparty risk. The widespread use of redemption gates by hedge funds reminded
investors of liquidity and commingling risk. The Madoff scandal underscored the impact of
operational, headline, and career risk."
Teo believes that while all this was happening, the financial crisis may have also changed the way hedge fund managers themselves approach risk taking. "After all, the crisis must have been firmly etched onto the minds of ...................... To view our full article Click here
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