Disclosures

81.5: Discuss the objectives of hedge fund investors in seeking disclosure from fund of hedge fund managers and the IRC-recommended alternative to full position disclosures.

The investor Risk Committee (IRC) of the International Association of Financial Engineers identified three main objectives of hedge fund investors in seeking disclosure from fund of hedge fund managers:

• To monitor risk, ensure that managers do not exceed expected risk levels.

• To aggregate risks up to the investor's acceptable portfolio level.

• To monitor drift in strategy, ensure that a manager maintains consistency with his prespecified style.

The IRC-recommended alternative to full position disclosures is to report summary statistics for risk, return, and position information. The IRC stated four areas of evaluation:

• Content—quality and sufficiency of information about risk, return, and positions.

• Granularity—depth and level of details of disclosures.

• Frequency—timing and regularity of disclosures.

• Delay—lag time between significant event and disclosure.

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