How hedge funds work

An interesting insight to SMEs into the risk management and valuation methods applied by hedge fund managers provides the »Precautions that Pay Off» study in English language by Deloitte. According to the study hedge funds are exposed to ever increasing competition. Their number has almost quadrupled since 1995 and their assets under management almost multiplied by six. Of course, these changes of the competitive environment have also affected the acquisition and investment strategies of hedge fund managers with regard to small and medium-sized entities (SMEs). The knowledge thereof may be important for both negotiations and defence strategies.

As is the case with any fund the risk management of hedge funds depends on their respective investment strategies. In the meantime some methods have established themselves and become standards. However, Deloitte, which is a renowned consultancy firm operating worldwide, in its global study deals with these standards only from the hedge fund´s perspective and shows that sooner or later hedge funds have to consolidate in order to remain competitive. In view of this development small and medium-sized entities may respire and expect that sooner or later the hedge fund business will rid itself of its black sheeps and turn from a feared opponent into a welcomed partner.

The Deloitte study was carried out in co-operation with Hedge Fund Research among 60 international hedge fund issuers with a total of more than 75 billion US$ of assets under management. The complete »Precautions that Pay Off« study is available for free-of-charge download. GERMAN