Alternative investments and the mismanagement of risk / Dimitris N. Chorafas.

Format:

Book

Author/Creator:

Chorafas, Dimitris N.

Language:

English

Subjects (All):

Investments.

Risk management.

Hedge funds.

Physical Description:

xii, 260 pages : illustrations ; 23 cm

Place of Publication:

Houndmills, Basingstoke, Hampshire ; New York : Palgrave Macmillan, 2003.

Summary:

In this book Dimitris N. Chorafas has uncovered the hidden risks behind alternative investments through extensive research in the US. UK. Germany, France, Italy, Scandinavia, and Switzerland. He also provides solutions to the problems identified. This book is particularly important in light of recent scandals such as Enron and WorldCom.

Contents:

2. Alternative investments and end-investor 3

3. A definition of alternative investments terminology 7

4. Back to basics: Investing in the financial markets 10

Regulated financial institutions and non-banks 12

Classification by financial instruments 13

New capital adequacy requirements 14

5. The participants in alternative investments 15

Absolute power corrupts absolutely 17

Don't follow the herd. You will get burned 17

6. Hedge funds and the lack of regulation 18

7. The role of hedge funds in alternative investments 21

The impact of hedge funds on financial markets 23

Every institution is exposed to mismanagement of risk 25

Appendix The dead mule and the old country farmer 26

2 Are Alternative Investments Inherently Risky? 28

2. Identifying the risks of alternative investments 30

Illiquidity and volatility magnify the risks 31

Are alternative investments liquid financial products 32

Liquidity, transparency, and supervision 35

3. Risks resulting from diversification and from absolute returns 36

4. Lies associated with liquidity, high returns, and other propaganda 40

5. An interesting meeting with one of the better managed hedge funds 44

6. Everything changes, including the market and its performers 48

A lot of homework needed for tax liability 49

A guaranteed principal is one of the options 50

7. An introduction to operational risk for alternative investments 51

Mismanagement is a major operational risk 54

Beware of operational risks in a sales pitch 54

The need to control operational risk 55

3 Globalisation, Legal Risk, Reputational Risk and Technology Risk 58

2. Deregulation and globalisation propel the alternative investments 60

3. End-investor activism and legal risk 62

4. Banks, special alternative investment vehicles and brand name risk 65

5. No investment policy should leave aside reputational risk 68

The cover-up is worse than the crime 70

Risk takers can lose track of their priorities 71

6. Hedge funds and credit institutions should care about legal risk 73

Any alternative investment can become a drag 74

Paying for legal protection 75

7. The need for high technology by alternative investment vehicles 76

8. Technological leadership and end-investors 80

4 The Financial Risks Taken with Alternative Investments 84

2. Alternative investments and mutual funds fatigue 85

The power of big mutual funds became a negative factor 87

What makes venture capital a different species 88

3. Emerging companies and emerging markets 90

4. Securitised subprime credit and junk bonds 93

5. Private equity and unlisted securities 97

6. Structured approaches offered to investors 102

7. Ginnie Mae and other debt instruments 105

8. Investing in CATs and superCATs 107

Basic characteristics of CAT bonds 108

Instruments for alternative risk transfer 109

5 Hedge Funds, Multimanagers, and the Macromarkets 111

2. Hedge funds' investment policies and leveraged strategies 112

Asset selection and risk management 113

The difficulty of obtaining performance metrics 115

3. Funds of funds: the multimanagers of hedging 118

4. Some of the better hedge fund managers and their macrostrategies 122

5. Examples of strategies followed by macromanagers 124

6. Capital flows, macroeconomy, and 'Tidal Wave XXI' 127

7. The effects of speculative capital movements 130

6 Risk and Return with Derivatives 135

2. A sweet and sour taste of derivatives 136

3. Demodulating the notional principal amount exposure 139

4. The changing pattern of derivatives trades 142

5. The current huge derivatives exposure 147

6. Financial institutions and their derivatives risk 149

7. Risks for hedge funds dealing in derivatives 151

8. Can regulators control the risks of derivatives? 154

7 Scrutinising Alternative Investments Strategies Intended to Give Higher Returns 159

2. Assessing the claims made on behalf of alternative investments 160

3. The merchandising of risk: basic facts which are important to pension funds 165

4. Appreciating the risks of going retail 169

5. Leveraged trades and conflicts of interest 172

6. Be careful what you wish for 175

7. The experience of Quantum and Tiger 178

8. Promises made with alternative investments and the lack of market discipline 182

8 Assessing Strategic Risks through Stress Testing 185

2. Leverage, strategic risk, and VAR 187

3. Stress tests are a culture: not a bunch of tools 191

God is in the detail 193

Gicero's key questions 194

The Fermi principle 195

4. Stress testing outliers and nonlinearities 197

Rethink the cause and effect relationship 197

The challenge of nonlinearities 199

5. The mindset required for historical and hypothetical stress tests 200

6. Stress testing different types of risk 204

The breach in the teflon of hedge funds secrecy 205

Beware of mispricing 206

Problems of leveraging and of personal accountability 207

7. Ways and means for exercising damage control 208

8. Is delta hedging and gamma hedging a solution? 211

9 Highly Leveraged Institutions, Regulators, and the New Lenders of Last Resort 215

2. Alternative investments and twenty-first century risks 216

Regulation and the aftermath of excessive volatility 217

The issue of personal accountability 219

Correlation between different types of risks 220

3. As a bad precedent, LTCM is a prognosticator of 21st century failures 221

A mare's nest of self-made misfortunes 222

Lack of supervision leads to conflict of interest 224

4. Market discipline and self-discipline 226

5. The regulation of global financial institutions, hedge funds, and alternative investments 230.

Notes:

Includes bibliographical references (pages 251-255) and index.

ISBN:

1403906815

OCLC:

50645706