WEST PALM BEACH, FL (HEDGECO.NET) – The global growth in hedge fund management portfolios has led to a greater demand for hedge fund risk-management systems, according to a Reuter�s news report. Riskmanagement experts believe such demand resulted from increasing concerns over the level of exposures by banks. Edward Durkee, Florida-based chief investment officer at Athena Risk Advisors hasprojected that the level of global risks will either triple or quadruple every year for the foreseeable future.
According to risk management experts, risk overlays of about 5 to 8 % are generally allocated to a portfolio, and a specialist risk manager generally oversees such assets, with the aim of reducing volatility, leading to increased returns. According to Durkee, overlays achieve on the average about 30% reduction on the volatility level of a portfolio over ten-year duration.
Durkee said, “It’s a very high growth business because the need is so great. I would say excluding currency overlays, which is a mature business and a whole thing by itself with very different characteristics, the non-currency part of the overlay business in 2004 is in the order of $90 billion in exposure.�
The level of business of Athena, according to Durkee, has grown significantly since 2003, with an increase of about 30% in the volume of business. He added, “For a long period of time we’ve generated alpha every year. It’s a byproduct in most cases, it’s not the primary objective, everything we do on the overlay side is pretty mechanical, but on the manager selection side it’s qualitative.”
The dramatic increase in hedge fund management assets, from about $200 billion ten years ago, to over $1 trillion today has produced fears in some minds particularly in the exposure levels of not only banks, but also prime brokerage companies. Many hedge fund analysts believe that this growth may not necessarily lead to a crash. Nevertheless, they believe that a period of consolidation will follow this era of growth, and a consolidation era will result in less growth in hedge fund managed assets.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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