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Addressing counterparty risk: Hedge funds and the need for rigorous due diligence

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  • Lewin, Marina
  • Todd, Jeremy

Abstract

This paper examines the counterparty risks currently being faced by hedge funds and suggests specific actions that can be taken to mitigate such risks. It presents findings from an independent study: Risk and Reward: Hedge Funds Changing Views on Counterparty Relationships, published by Pershing LLC, a subsidiary of BNY Mellon. The paper examines counterparty risk from the hedge fund manager's perspective and its implications for sound business management. The findings in this study are based on a survey of 23 global hedge funds conducted by the Aite Group, an independent research and advisory firm, in the summer of 2008. Drawing on the experiences and insights of leading hedge fund managers in the current volatile economic environment, this study provides a framework to consider when addressing and mitigating counterparty risk.

Suggested Citation

  • Lewin, Marina & Todd, Jeremy, 2009. "Addressing counterparty risk: Hedge funds and the need for rigorous due diligence," Journal of Securities Operations & Custody, Henry Stewart Publications, vol. 2(3), pages 225-230, September.
    • Handle: RePEc:aza:jsoc00:y:2009:v:2:i:3:p:225-230
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    More about this item

    Keywords

    counterparty risk; hedge funds; prime broker; tri-party custody;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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