Alternative Investments and the Mismanagement of Risk by Dimitris N. Chorafas (auth.)

By Dimitris N. Chorafas (auth.)

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Extra resources for Alternative Investments and the Mismanagement of Risk

Example text

Lack of liquidity also increases the risk that the hedge fund or SAIV, will be required to liquidate positions at a notable disadvantage because of its inability to raise margin collateral from other sources. ‘Lack of liquidity also applies to mutual funds facing redemptions,’ said a reviewer. ’ The reviewer is definitely right in this statement, provided we all appreciate that the risk of market illiquidity is materially heightened by the use of leverage and the possibility that margin calls will need to be met in declining or disrupted market conditions, let alone in the case of panic.

Absolute power corrupts absolutely One of the points a couple of reviewers have made is that this text does not give the readers the credit to be able to make up their own minds about the subject of alternative investments and their risks. It is telling them up front what the author’s opinion is, and goes on to prove it. There are several ways of answering this argument. One of them is that all 17 books on alternative investments already in the market praise them as the right deal at the right time – which is wrong.

Furthermore, if every institutional holder moves to hedge funds because of the search for diversification, low returns in the bond markets, or any other reason, the alternative investments’ business runs the risk of becoming another emerging markets’ boom and bust. 7. The role of hedge funds in alternative investments Alternative investments policies and practices have been followed by the better known hedge funds since the 1980s. Quantum and Tiger Management, for example, pursued a policy that combined leverage 22 Alternative Investments and the Mismanagement of Risk with geopolitical conditions.

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