Customer Reviews

Managing Hedge Fund Risk: Strategies and Insights from Investors, Counterparties, Hedge Funds and Regulators, Second Edition

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This couldn't be timelier. Much water has passed under the bridges on both Wall Street and Main Street since the first edition came out in 2000. As Editor Virginia Reynolds Parker points out, there's been a bear market and hedge fund assets have more than doubled to over $1 trillion dollars. Meanwhile, Parker's book became the standard reference for hedge fund investors. The updated version should prove just as useful and indispensable.

Pensions in particular have been flocking to hedge funds, the fancy and expensive cousins of mutual funds that the media insistently calls "risky". But what does that really mean? There are two ways of using this book. If you're looking for specific information on hedge fund strategies and the hazards they may involve, turn to the appropriate chapter. In the spring of 2005, for instance, when convertible arbitrage returns turned into copious amounts of red ink, you could have read detailed descriptions of how convertible securities perform in the face of various shocks and why convertible returns have been disappointing since 2002 (chapter 10).

If, on the other hand, you want to grapple more broadly with the slippery idea of risk, start with the paper by Robert Jaeger on how to define it, measure it, and manage it. He makes this complex topic comprehensible. In simple terms, risk is expected pain. Assessing it in any situation requires answers to two questions: How likely are the painful outcomes? How bad is the potential pain? Jaeger points out that the answers may not be numerical. Even if you have data, you're not going to understand risk by looking at numbers.

The pieces are written by investors, managers, bankers, and lawyers. The book conveniently bundles these together in sections, starting with the investors' perspective. Mark Anson, the chief investment officer of the California Employees' Retirement System, leads the lineup with a study on how to measure performance. His findings are essential to anybody that invests in hedge funds.

Maybe these intricacies are not for you. In that case, make sure your financial adviser, consultant, pension officer, and foundation chief read this book.