3 Best Practices for Hedge Fund Manager
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3 Best Practices for Hedge Fund Manager

By Capital Markets CIO Outlook | Wednesday, November 06, 2019

Hedge fund managers can leverage specific policies and practices to mitigate the risks involved in hedge funds.

FREMONT, CA: Hedge funds are the pool funds that carry enormous potential as well as risk for the investors. As Hedge funds managers can invest in almost anything from stocks, real estate, currencies, and derivatives, the investments are subject to wide-ranging risk factors. Further hedge fund managers often use the investors' money to amplify the returns in case of a financial crisis. Such a practice can result in unbearable losses in case of failed investment outcomes. Though hedge funds managers always deal with risky ventures, certain practices can boost the possibility of minimizing risk as well as generating maximum returns for the investors.

Including Disclosure Policies

Hedge fund managers can maintain transparency by providing the investors with regular updates over investment strategies, potential risk of investing in a fund, products, and terms, and potential conflict of interests. Hedge fund managers should also update the investors over performance and material developments with respect to the fund. An updated investor will understand the potential risks involved and can make better investment decisions.

Forming a Valuation Committee

It is essential for hedge fund managers to establish a valuation committee that will monitor the fund's valuation policies and procedures. A fund's valuation policy includes the stakeholders in the valuation process, the standards for valuing the types of investment, internal documentation procedures, and the ways to counter potential conflicts in the valuation process. Hedge fund managers should also incorporate specific policies for investments that are difficult to evaluate owing to the complexities involved.

Designing Trade Operation Policies

Hedge fund managers need to develop policies to manage fund's margin, cash, and collateral requirements for purposes such as core infrastructure and operational necessities. It is also advisable for the hedge fund managers to have systems, processes, and personnel that can match the equivalence of the complexities involved in the trade. Further, there must be effective systems and staff to manage and develop comprehensive accounting status for the funds as well as to counter risk via appropriate business continuity plans.

Working on the above recommendations will enable the hedge fund managers to curb the risks involved significantly. Moreover, hedge fund managers will be able to provide a higher level of accountability to the respective stakeholders. 

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