Скачать презентацию Theory and Practice of Risk Management in Hedge Скачать презентацию Theory and Practice of Risk Management in Hedge

25bab8739699706c5e07f918dbfbb538.ppt

  • Количество слайдов: 27

Theory and Practice of Risk Management in Hedge Funds Barry Schachter 2005. 12. 05 Theory and Practice of Risk Management in Hedge Funds Barry Schachter 2005. 12. 05 Copyright 2005 Barry Schachter

Overview & Summary t. What goes on in hedge funds t. Landscape of risks Overview & Summary t. What goes on in hedge funds t. Landscape of risks t. Risk Measurement t. Risk Management 2005. 12. 05 Copyright 2005 Barry Schachter 2

Tradewinds International t Charles L. Harris Raised from 30 investors $10 MM between 1995/2001 Tradewinds International t Charles L. Harris Raised from 30 investors $10 MM between 1995/2001 and 2004 Made false statements (K-1) about NAV ($30 MM vs $1. 1 MM in 2003) Used investor funds ($2. 4 MM) for t Personal expenses t To repay investors at inflated NAVs Losses: Commodity futures/options 2003 -2004 SEC/CFTC civil actions 2004/09/02 Do. J criminal suit 2004/09/09 Sentenced to 168 months/$13. 9 MM 2005/10/06 t Pirate? 1723/07/19 t t t t 2005. 12. 05 Copyright 2005 Barry Schachter 3

Operational Risk t. Defn: Loss from failure of ordinary business processes (getting business done) Operational Risk t. Defn: Loss from failure of ordinary business processes (getting business done) t. Causes: poor process, poor training, poor alignment of incentives, serendipity 2005. 12. 05 Copyright 2005 Barry Schachter 4

Op Risk Remedies t Internal Solutions t Prudent actions t Investor-Manager contract t Industry Op Risk Remedies t Internal Solutions t Prudent actions t Investor-Manager contract t Industry Guidance (CRMPGII, IAFE Op Risk) t External Solution – Regulation t Prime Directive – ‘Break glass’ only if internal solution isn’t socially optimal and incremental costs do not exceed benefits t Perception that HFs are ‘lightly regulated’ t Relative to what? t Light is equated with poor in perception 2005. 12. 05 Copyright 2005 Barry Schachter 5

US HF Regulation Overview t SEC t Registration required (Feb 2006) (2 Yr lock-up US HF Regulation Overview t SEC t Registration required (Feb 2006) (2 Yr lock-up exception) Form ADV t Fraud/Fiduciary t Reg. Filings – Form 13 D t Indirect – Prudential Supervision of PB (‘CSE’) t CFTC t Registration required (CTA/CPO) t Fraud/Fiduciary t Reg. Filings - Speculative position limits 2005. 12. 05 Copyright 2005 Barry Schachter 6

HF Risk Management – Big Picture t. Op Risk is not the first concern HF Risk Management – Big Picture t. Op Risk is not the first concern t. Market Risk t. Credit Risk t. Liquidity, Concentration, Reputation t. No regulation demands t. No standard risk management model t. Limited independence 2005. 12. 05 Copyright 2005 Barry Schachter 7

Brief Aside on Risk Measurement t. Quantification Helps Risk Control t. Some Measures t. Brief Aside on Risk Measurement t. Quantification Helps Risk Control t. Some Measures t. Value at Risk (Va. R) t. Stress Testing t. Sensitivities (e. g. , bpv, options) t. Notionals (e. g. , GMV, NMV) t. P/L volatility t. Drawdown 2005. 12. 05 Copyright 2005 Barry Schachter 8

Market Risk t. The risk of monetary loss arising from an adverse move in Market Risk t. The risk of monetary loss arising from an adverse move in market prices or rates (includes traded credit risk) 2005. 12. 05 Copyright 2005 Barry Schachter 9

Market Risk Management – On the Desk t. Trading limits t. Risk-based (Va. R, Market Risk Management – On the Desk t. Trading limits t. Risk-based (Va. R, Stress) t. Nominal (Gross/Net positions, Concentration, Liquidity t. P/L related (portfolio stop and drawdown) t. Dialogue 2005. 12. 05 – more important than limits Copyright 2005 Barry Schachter 10

On the Desk (cont’d) - Dialogue t Asking Good Questions t Is that really On the Desk (cont’d) - Dialogue t Asking Good Questions t Is that really correlated? t Does that data change your thesis? t Is it in the price already? t Reducing Trader Errors t Drunk with success t Doubling down t Fear of failure t Deer in the headlights (stops) t Options trading problems 2005. 12. 05 Copyright 2005 Barry Schachter 11

On the Desk (cont’d) – Options Trading Mistakes t The short vol game (Caxton On the Desk (cont’d) – Options Trading Mistakes t The short vol game (Caxton ED) t Implied leverage near expiry (BAM biotech) t Exercise to exit (SAC healthcare) t The lottery ticket t Buy OTM near expiry (BAM equity) t Ignore MV vs Intrinsic (Caxton EUR) t Fair value vs. Quote (Caxton exotic) t Buy/Write to protect profit (BAM retail) 2005. 12. 05 Copyright 2005 Barry Schachter 12

Getting Inside a Trader’s Head t. Entry (timing, catalyst, technicals) t. Sizing (look for Getting Inside a Trader’s Head t. Entry (timing, catalyst, technicals) t. Sizing (look for confirmation, scaling in) t. Position management t. Exit (stops vs. price targets) 2005. 12. 05 Copyright 2005 Barry Schachter 13

What Worries Me - Traders t Hubris t “I have never lost money before” What Worries Me - Traders t Hubris t “I have never lost money before” t “There a million reasons for this to work” t Style drift t Market view takes over (becoming a macro trader) t Losers become long-term trade ideas t Focus t “I will just allocate 1% of capital” t “I don’t want to hedge the FX exposure” t Wanting the last quarter point of a trade t “Another PM got me into it” 2005. 12. 05 Copyright 2005 Barry Schachter 14

Portfolio Risk Management t Measurement Problems are Everywhere t Flat at the close t Portfolio Risk Management t Measurement Problems are Everywhere t Flat at the close t Arbitrage/convergence (OTR vs off-the-run; liquidity bet) t Merger arbitrage t Liquidity risk for “chunky” positions t Collateral-at-risk t Valuation Problems t Operational Risks 2005. 12. 05 Copyright 2005 Barry Schachter 15

Operational Risk Example – Bayou (2005) t. Raised $400 MM, ‘lost’ $300 MM t. Operational Risk Example – Bayou (2005) t. Raised $400 MM, ‘lost’ $300 MM t. High risk trades to try to make up losses t. CFO owned ‘independent’ auditor t. Affiliated broker made $50 MM commissions from Bayou t. Misreported NAVs, commission exp. t. Principal, Samuel Israel III, lied about background in marketing 2005. 12. 05 Copyright 2005 Barry Schachter 16

Operational Risk Example – Wood River (2005) t. No auditor/audits (contrary to marketing materials) Operational Risk Example – Wood River (2005) t. No auditor/audits (contrary to marketing materials) t. PPM stated max position 10% capital t. Placed 65% of capital in one small cap (not disclosed to investors) 2005. 12. 05 Copyright 2005 Barry Schachter 17

Operational Risk Example – Lipper Convertibles (2002) t. Convertible arb fund t. Assets plunged Operational Risk Example – Lipper Convertibles (2002) t. Convertible arb fund t. Assets plunged 40%, not up “a few” percent t. Revised managers’ valuations after they left t. Delta hedges not adequate 2005. 12. 05 Copyright 2005 Barry Schachter 18

Operational Risk Example t. Phoenix Research and Trading t$125 MM losses – January 2002 Operational Risk Example t. Phoenix Research and Trading t$125 MM losses – January 2002 t. Trading US Treasuries 2005. 12. 05 Copyright 2005 Barry Schachter 19

Operational Risk Example (Sellside Lessons) t. Allfirst Financial – John Rusnak t$690 MM losses Operational Risk Example (Sellside Lessons) t. Allfirst Financial – John Rusnak t$690 MM losses – February 2002 t. Trading major currencies t. National t. Almost 2005. 12. 05 Australia Bank – Jan ‘ 04 identical story Copyright 2005 Barry Schachter 20

Fundamentals of (Independent) Risk Management t. Be proactive not reactive t. Create risk management Fundamentals of (Independent) Risk Management t. Be proactive not reactive t. Create risk management culture t. Align interests (the “free put”) t. Have independence and authority t. Establish credibility and trust 2005. 12. 05 Copyright 2005 Barry Schachter 21

Fundamentals of (Independent) Risk Management cont’d t. Understand risks t. Hidden t. Know range Fundamentals of (Independent) Risk Management cont’d t. Understand risks t. Hidden t. Know range and magnitude of risks (e. g. equity factors) what you don’t know t. Vol swap t. Economic derivatives t. Communicate issues clearly t. How to say “no” t. Speaking the language 2005. 12. 05 Copyright 2005 Barry Schachter 22

What Worries Me - Options t. Unmeasured risks (pin, knockout, corr. ) t. No What Worries Me - Options t. Unmeasured risks (pin, knockout, corr. ) t. No marks (price/vol) t. Dealer/trader supplied marks t. Liquidity 2005. 12. 05 Copyright 2005 Barry Schachter 23

What Worries Me - Liquidity t. Volume t. Firm position t. Market players t. What Worries Me - Liquidity t. Volume t. Firm position t. Market players t. Short interest t. Technical stops and the rush to exit t. When the market stops trading 2005. 12. 05 Copyright 2005 Barry Schachter 24

Managing Up t. Communication t. Keep message simple t. Be clear (accuracy less important) Managing Up t. Communication t. Keep message simple t. Be clear (accuracy less important) t. Overview t. Monitor risk appetite t. Evaluate performance 2005. 12. 05 Copyright 2005 Barry Schachter 25

Managing Out - Investor Risk Disclosures t. Requirements/Practice t. Issues with disclosure t. Disclosure Managing Out - Investor Risk Disclosures t. Requirements/Practice t. Issues with disclosure t. Disclosure dissipates private information t. Only position level disclosure makes aggregation possible t“Snapshots” of risk are misleading t. Fund risks have option characteristics 2005. 12. 05 Copyright 2005 Barry Schachter 26

Conclusion t. Successful risk management is in the details t. Subjective component of risk Conclusion t. Successful risk management is in the details t. Subjective component of risk management looms large t. The only constant is change 2005. 12. 05 Copyright 2005 Barry Schachter 27