Counter-party risk management is essential for all hedge fund managers

Managing counter-party risk is becoming an extremely integral part of business operations for all financial firms. Risk management has only become popular with hedge fund managers starting several years ago. A recent study, entitled Risk and Reward: Hedge Funds Changing Views on Counter-party Relationships, cited that, "An overwhelming 96% of respondents also cited managing counter-party risk as the number one factor in selecting their prime broker relationships." The same study also showed that this type of risk management was not a priority with hedge fund managers just a few years prior. The study stated that several years ago only "22% viewed it as moderately important..."

So what has changed for hedge fund managers that now counter-party risk management has become so important in your business operations?

Firstly, the credit crisis has caused most hedge fund managers to raise the bar when it comes to dealing with counter-party risk management. Risk management, as it relates to counter-party relationships, has had a huge shift since the credit crisis. In fact almost all financial firms have significantly changed their operations since the credit meltdown to enhance risk management and protect their firm. But there is another major reason why firms have now made counter-party risk management a higher priority in their daily operations. With the recent uncovering of the plethora of corruption on Wall Street, investors are becoming increasingly cautious with which financial firm they invest with, and it has become imperative for hedge funds to make risk management practices a top priority to survive. Due to this phenomenon hedge fund managers are highly sensitive about their reputations should any of their major counter-parties default on their responsibilities. So, the credit crisis and investor confidence have truly affected the hedge fund industry by causing major changes to how these firms implement risk management solutions.

Counter-party risk management begins with consistent and thorough internal portfolio management. But most hedge funds are using labor intensive methods to keep track of their counter-party relationships, which is becoming increasingly more difficult with their growing presence in the global markets. In short, if you are trying to implement counter-party risk management without using the most up to date services and technologies, your firm's risk management practices are obsolete. Any firm's risk will only increase by using these outdated methods while expanding your global presence at the same time. New risk management methods must be taken in order to minimize counter-party risk and protect your firm's reputation.

So what is the best solution for a hedge fund to take in order to combat counter-party risk?

An experienced and established compliance firm is the only way for a hedge fund manager to properly control their counter-party risk and implement solid risk management practices. An established Wall Street compliance firm will always offer the best risk management solutions when it comes to risk exposure, by using the latest software and technology to track counter-party risk in the most efficient way. Risk analytics software is a part of any reliable and experienced Wall Street compliance firm and is used to monitor not only counter-party risk, but all risk management areas that the hedge fund manager must keep track of in his firm. By using the software and technology that a respected compliance firm offers, hedge fund managers will considerably cut their risk and save time, money, and energy.

If you would like any further information about counter-party risk solutions or have any questions about risk management in general, fill out the form to the right of the page and a professional compliance and risk management expert will contact you regarding your complimentary consultation.