Our views on risk management of alternative investments

Is the Sortino Ratio an effective comparative risk measure? Explore its nuances, advantages, and limitations in our latest article. Discover insights from a comprehensive study and learn about Risk Shell's innovative FlexiRank framework, offering a nuanced approach to asset comparison.

Based on the Markowitz’s mean-variance model, the Capital Asset Pricing Model (CAPM) inherits all the shortcomings of the latter in addition to its own assumptions that makes it hardly applicable for hedge funds and non-linear assets. While the CAPM still emerges as the most commonly used approach for both institutional and private investors, using it for hedge funds could be disastrous.

The Markowitz’s mean-variance methodology is hardly applicable for hedge fund risk assessment. Since its introduction, the mean-variance methodology became the primary tool for portfolio diversification used by the majority of pension and mutual funds globally. However, despite its popularity, the mean-variance approach suffers important drawbacks...

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Typical mistakes in hedge fund valuation and risk assessment arise from neglecting their unique properties: non-normal return distributions, low transparency, bizzarre hedge fund indices, inapplicability of the mean-variance methodology, numerous data biases etc. The distinct hedge fund valuation and risk management problems can be outlined as follows...

The unique hedge fund risk assessment problems arising from numerous causes like non-normality of their distributions of returns, bizarre hedge fund indices and data biases are not new. One may easily find hundreds of articles and deep researches on the subject as well as a few proven investment frameworks offering feasible solutions by enhancing the commonly used risk metrics.

There are two distinct trends in finance software applications: tools designed to provide a deep insight into the matter and products aimed to make impressions. The latter dominate the industry, thus opening an apparently naive question - why do investors need analytical tools and applications at all?

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