Contact: Louise Denver
Deloitte
FSI Communications Consultant
+61 2 9322 7615

Contact: Sarah Woodhouse
Deloitte
Assurance & Advisory Partner
+61 (0) 2 9322 7510

As hedge funds grow in size and complexity, risk management and valuation practices are becoming increasingly important for hedge fund advisers, investors and regulators according to a global survey released today by professional services firm Deloitte.

Precautions that Pay Off: Risk Management and Valuation Practices in the Global Hedge Fund Industry surveyed 60 hedge fund advisers from across the globe revealing that 50% of survey participants hold futures, swaps and derivatives without measuring off-balance sheet leverage.

This does give rise for concern says Sarah Woodhouse, wealth management leader at Deloitte. “Although it does not mean that the industry is headed for the equivalent of an HIH or Enron caused by inadequate valuation methods. It does mean there is a need for better risk management practices particularly as the sector is becoming increasingly competitive, attracting significant fund inflows.”

The latest AXISS Report put funds under management in Australia at $60.1 billion, up from $2 billion in 2000.

Coupled to this the sector is increasingly attracting the interest and attention of the regulators.

Sarah explained that accurate valuation of assets is particularly important for hedge fund investors when buying or selling units. “Any mismatch could mean investors either overpay or redeem at less than they should,” she said.

She pointed out that the flood of money looking for hedge funds does not mean managers should relax. “To attract institutional or superannuation fund assets you really need to ensure you are on top of these issues.”

“It is difficult for hedge funds to get quality assets, which will stay for a while increasing the need for proper risk management practices.”

Full media release below.