Liquidations Hurting Hedge Funds?
Amy White of Chief Investment Officer reports, How Liquidations Hurt Hedge Fund Returns (h/t, Ken Akoundi, Investor DNA ): It’s not just pension funds that have to worry about liability risks. Hedge funds with high exposures to funding level risks “severely underperform” less exposed funds, according to research from the Copenhagen Business School. “A good hedge fund follows alpha-generating strategies and simultaneously manages the funding risk that arises from the liability side of its balance sheet, that is, the risk of investor withdrawals and unexpected margin calls or increasing haircuts,” wrote PhD candidate Sven Klinger. “If not managed properly,” he continued, “these funding risks can transform into severe losses because they can force a manager to unwind otherwise profitable positions at an unfavorable early point in time.” At a time when many institutional investors are pulling out of hedge funds, proper management of liability risk is particularly essential—an