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Hedge funds improve risk management practices

Hedge funds have significantly improved their risk management practices in recent years due to their increasing popularity amongst traditional investors, according to a new study.

The study by consultants Mercer Oliver Wyman (MOW) follows concerns over hedge fund trading strategies in a high risk, $1.5 trillion industry.

But the study revealed that around 85 per cent of the surveyed funds now have a chief risk officer, while funds were also cutting the risk of failure by investing in internal audits and demanding that investors keep money in funds for longer periods of time.

"It's now much more common than it was a year ago for a hedge fund to have a chief risk officer or a middle office that functions much like the risk department you would normally associate with a bank," said Bradley Ziff, a director in risk advice at Mercer Oliver Wyman.

"The largest, most influential hedge funds and their creditor banks have an extremely sophisticated understanding of their risk profiles," he added, according to reports in the FT and Reuters.

However, the study concluded that more needed to be done to reduce risk in an evolving industry, with more transparency and disclose of risk-taking activity expected.