Back to all announcements

IAFE’s IRC releases new hedge fund risk report

New York, August 1, 2001-The International Association of Financial Engineers (IAFE) today announced that its Investor Risk Committee (IRC), founded in 2000 to address risk management issues for the investment community, has released its second report on hedge fund disclosure for institutional investors. The new report expands on the issues covered in the consensus report published in October of 2000. The IRC plans to continue its work and to expand the content of this document in future releases, with the goal of providing results that will help investors and managers to benchmark their practices relative to their peers.

Members of the IRC include hedge fund investment managers, institutional investors from pension funds, endowments, foundations, insurance companies and fund of funds, regulators, consultants, prime brokers, custodians and individuals from software and technology vendors including SunGard Trading and Risk Systems. Since its conception, the IRC has held six working sessions on the topic, "What is the right level of disclosure by hedge funds?"

In 2001 the IRC formed 11 smaller working groups to expand the consensus document it published in October of 2000. The subgroups formed by the IRC cover 9 common hedge fund strategies plus a "fund of funds" group to address aggregation issues across strategies. In addition, an "alternate approaches" group was formed as a number of IRC members felt that few hedge funds fit into one of the 9 pure strategy types on a consistent basis.

The new release provides expanded detail about the reporting of summary risk, return and position information as an alternative to full position disclosure by hedge funds. Where IRC members felt it useful, specific commentary is provided for specific hedge fund strategy types. The report also provides an alternate framework for classifying hedge funds that eliminates the need to classify a hedge fund by type of strategy. The dimensions of this new framework are asset class, direction, type, region, liquidity and turnover.

For more information and a copy of the full report, please visit www.iafe.org.

Tanya Styblo Beder (Managing Director, Caxton Associates), IRC committee co-chair, said, "The pace and meeting of the minds by this group of 150 individuals has been impressive. We reached consensus quickly on critical topics - for example, that the reporting of summary risk, return and position information can be sufficient as an alternative to full position disclosure. Each session has resulted in equally important findings that will be useful to institutional investors and hedge fund managers alike."

Bill McCauley (CEO, III Offshore Advisors), member of the IRC steering group, said, "In addition to the expanded work of the group, I believe the new strategy types offered in the "alternate approaches" section may eventually gain wide acceptance as they provide more summary information than those basic categories that are predominantly used today."

Maarten Nederlof (Managing Director, Deutsche Asset Management), IRC committee co-chair, said, "Both investors and fund managers have worked hard to find a reasonable midpoint between the historically differing perspectives of institutional fiduciary investors and hedge fund managers. Given the attention hedge fund investment is getting in the pension and endowment community, we hope that this report and subsequent work by the IRC will further their comfort in this area."

Giovanni Beliossi (Senior Quantitative Analyst, First Quadrant), member of the IRC steering group, said, "Returns in most traditional asset strategies have forced institutional investors around the world to pursue hedge fund strategies given their superior returns over the past decade. This combined with recent changes in Europe that make hedge funds investing even more attractive has produced keen interest by institutional investors and hedge fund managers in the IRC's work. We expect dozens of new investors and managers to join the effort with the IRC's fall meetings in London."

David Mordecai, member of the IRC steering group, said, "As with the IRC's first release, this is not meant to be the final word. Interest in the IRC's work continues to grow and we invite all hedge fund managers, institutional investors and others to join us."

About the International Association of Financial Engineers (IAFE)
The IAFE is a global organization devoted to defining and fostering the profession of financial engineering. The IAFE publishes the Journal of Derivatives which represents a merger with the IAFE's former publication the Journal of Financial Engineering, a quarterly devoted to the study of the many aspects of derivatives and financial engineering. Past issues have carried articles by such luminaries as Nobel Laureates Harry Markowitz and the late Merton Miller. Articles are drawn from across the financial engineering spectrum - new products, case studies, quantitative techniques, technology, wireless and e-commerce, regulation, etc.

Collaboration and networking between academics and practitioners are major objectives of the IAFE. After spending almost a decade on its founding mission - to define and foster the emerging field of financial engineering - the Association turned its focus towards the established sectors of the field and another of the IAFE's missions - to promote informed exchanges among members to further understanding, share best practices and establish standards on pertinent aspects of technology, credit risk, the impact of e-commerce, legal, regulation, risk management, tax, and accounting. Education is a major component of the IAFE's mission. The IAFE sponsors numerous sessions where new products, strategies, quantitative finance and technologies are discussed among practitioners and academics and where public policy issues are debated. Visit IAFE at www.iafe.org