A year ago a good name and an impressive track record were all a hedge fund manager needed to attract investors. Today that same manager is under pressure to demonstrate risk controls before most investors will hand money to, or even keep money with, his firm.
Brian Schmid, head of alternative-investment business strategy at RiskMetrics Group, a New York–based firm that does risk analysis for funds and investors, says most hedge funds have adapted to the new reality and are more willing than they used to be to provide such information. They cooperate for one major reason, he says: to stay in business.
RiskMetrics counts among its clients many of the top 50 funds in Alpha ’s Hedge Fund 100 ranking of the world’s biggest hedge fund firms (May 2008), a following it has gained by promoting itself as a third-party service that feeds risk analysis to investors without...