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We usually work with our clients to agree the risk management
strategies to be used in managing the portfolio.
In the case of fund of funds accounts, risk is managed by
widely diversifying the portfolio across a number of different
hedge fund managers, investment strategies, investment markets
and underlying securities such that it is unlikely that the
hedge fund investments will decline in value
simultaneously. Where the client would prefer to a lower
risk/return fund of funds portfolio, we also exclude more
aggressive hedge funds and hedge fund strategies from the fund
of funds portfolio so as to further dampen the portfolio
volatility.
Where Coastal Capital is the portfolio manager and we would
normally impose the following risk limits, however, these can
be adjusted at any time in consultation with the client:
Market
Exposure
- 80%
< Total long/total short ratio < 120%
Strategy
limits
- Event
driven – no limit
- Distressed
< 30% of net assets (long)
- Stock
Selection < 50% of net assets (long)
- Relative
Value < 30% of net assets (long)
- Investment
Banking < 30% of net assets (long)
- Arbitrage
– no limit
Maximum
investment size
- “Issuer”
exposure (long and short) < 20% net assets
- Unlisted
equity exposure < 10% of net assets in total
Maximum
Gearing
- Total
long exposure < 150% net assets
- Total
short exposure < 150% net assets
Currency
- Fully
hedge value of investment
Derivatives
- Derivatives
exposure = same as physical (delta)
- Never
used to add to market exposure
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