Best Practices for Hedge Fund Separate Account Risk Management

The Asset Management Group of the Securities Industry and Financial Markets Association (whose members include hedge funds and private equity funds) recently asked its members and other notable asset managers to respond to a survey about separate accounts that they manage.  Among other things, the survey asked respondents to detail their risk management processes and the nature of their approaches toward monitoring counterparty and other risks for separate accounts.  The survey report provides detail on how the surveyed firms monitor counterparty risk for separate accounts; risk metrics typically measured and monitored on an ongoing basis in the course of management of separate accounts by the surveyed firms; and risk management processes (other than counterparty risk management) the surveyed firms typically employ in the management of separate accounts.  This article describes the survey process and the survey findings, focusing in particular on the findings related to risk management for separate accounts.  The survey findings are relevant to hedge fund managers that manage separate accounts in crafting or refining their risk management systems with respect to such accounts.  See also “BNY Mellon Study Identifies Best Risk Management Practices for Hedge Fund Managers,” Hedge Fund Law Report, Vol. 5, No. 37 (Sep. 27, 2012).

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