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A course designed to establish, understand and explore the approaches to operational risk management. Delegates will discover the business benefits of appropriate risk control and the identification of key risk indicators and linking indicators to risk and control assessment.This course will be of benefit to those that are new to the subject or who are increasingly being involved in risk management arena.
Topics:
analysis of the key elements contained within overall hedge fund risk, including liquidity, leverage and transparency. Compares and evaluates the tools for measuring and managing hedge fund risk, role of technology in managing risk, as well as business risk for hedge fund advisers
Objectives:
Delegates will learn to identify risk factors, develop risk mitigation strategy
Format:
presentations by trainer, interactive discussions between trainer and delegates, case studies and exercises by delegates.
What you will learn:
This course will provide delegates with the skills to identify and isolate the key elements contained within overall hedge fund risk, including liquidity, leverage and transparency. It compares and evaluates the tools for measuring and managing hedge fund risk. The course also examines the vital role technology plays in managing risk as well as the business risk hedge fund advisers face. Delegates will also learn why hedge funds fail, with the collapse of LTCM used as an example. Case studies and exercises are used throughout to reinforce the main concepts.
Course categories:Back Office Courses, Operations Settlements Clearing Courses, Securities Services/ Securities Finance, Back Office Inhouse Courses , Operations settlements Clearing Inhouse, Securities Services/ Securities Finance Inhouse
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Introduction
Understanding hedge fund risk: what is risk? How do hedge fund risks differ from those of traditional investment strategies? A review of the market and operational risks associated with hedge fund investments.
Traditional Investment Risk Measurement
Understanding market and credit risk related to a diverse range of hedge fund investment strategies; why the most basic risk measurements such as standard deviation and confidence levels fail to measure hedge fund risk adequately. What is Extended Tail Loss (ETL)? Where is VaR helpful; and where is it off target? Monte Carlo simulations: an effort to pick up where VaR falls off; stress testing including key drivers and factor analysis; measuring and reporting of investment risk by hedge funds to investors. How diversification and/or structured products affect hedge fund risk profiles.
Operational and Liquidity Risk
How do you compare procedures? How do you quantify operational risk management practices? Hedge fund manager considerations: instrument liquidity, redemption liquidity, financing liquidity; fund-of-fund manager considerations: lock-ups, payments in kind, liquidity mismatches, coupon and corporate action errors, fails.
Regulatory, Legal &Counterparty Credit Risk
Overview of regulatory trends; impact of stricter regulation on fund operations; risk and returns; legal entity risk. How does a hedge fund manage its counterparty risk? How do dealers treat funds? Should hedge funds provide credit protection to institutions? Impact of Basel II on hedge funds and the industry; why are/arent more hedge funds rated?
| Exercise: Identification and classification of investment risks in a hedge fund portfolio. |
Portfolio Diversification as a Risk Management Tool
How do multi-strategy hedge funds and fund of funds affect risk? Who are the major players and how are fees charged? What is the role of structured products and PPN as risk mitigants and at what cost?
| Exercise: Participants will review key points from the day and perform a practice risk assessment and asset allocation exercise. |
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Day Two - Business Risk Assessment
Role of Technology in Risk Mitigation and Reporting
Electronic forms of information: to gather position data from managers, prime brokers and counterparties; to reconcile positions independently; to analyse risk using VaR, stress testing, correlation analysis and concentration analysis; to calculate a daily (or real-time) NAV; to report NAV and risk information in a customised and client-friendly format.
Role of Fund Administrators, Auditors and Independent Valuations in Mitigating Risk
Are fund administrators helpful in mitigating risk? What are the pros and cons of independent valuation and marking to model of illiquid and complex securities? What reliance is placed on independent audits?
Transparency: The Great Debate
Different kinds of transparency; when is there too much transparency; when can transparency harm rather than protect.
| Case Study: the Madoff fraud vs the Amaranth collapse. |
Assessments of Business Risk of Hedge Fund Advisers
What is the impact of the hedge fund managers ability to run a business with regards to hedge fund performance and associated risks? Analysis of the key cash flows of a hedge fund advisers business (management fee, performance fee) and the impact on the viability of the business; one product vs. multi-product providers.
Why Hedge Funds Fail
Reasons for hedge fund failures: fraud, mismanagement, and markets.
Other Risks
Other risks hedge fund advisers face: non-quantifiable risks such as key staff loyalty, protection of intellectual property and reputation-related risks.
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