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Hedge Fund Risk Managers

The Job

The primary responsibility of the hedge fund risk manager is to identify and quantify the sources of risk. The most common types of risk in the HF industry (and the duties of risk managers for each type) are:

Liquidity Risk

The Ability of the Firm to Meet its Needs for Cash


  • Monitoring and managing liquidity to ensure that the hedge fund has cash when needed
  • Reviewing credit and lending agreements made with lenders and investors in order to ensure that liquidity will be maintained in the event of triggering events or extreme market conditions
  • Conducting regular liquidity stress scenario analyses on the hedge fund to ensure that cash will be available when needed

Market Risk

The Financial Risk Created by Changes in the Market Price of Investments in the Hedge Fund


  • Identifying the size and direction of the firm’s exposure to major market risk factors (e.g., commodities prices, foreign exchange rates, interest rates, etc.)
  • Conducting scenario analyses and stress tests on the firm’s investment portfolio, as well as on its investment strategies, asset group, and other criteria

Operational Risk

The Firm’s Internal Processes, Employees, and Systems


  • Ensuring that a chief operating officer is in place to manage operational areas outside the realm of investment management
  • Making sure that the hedge fund manager has created strong internal controls to reduce the risk of losses tied to operational risk
  • Ensuring that operational risks related to Information Technology, disaster recovery planning, and business continuity are identified and addressed

Legal and Compliance Risk

Issues Related to Regulatory Compliance


  • Working closely with the firm’s chief compliance officer to ensure that regular compliance filings are made to the Securities & Exchange Commission and other regulatory bodies
  • Identifying compliance issues that would create the risk of regulatory non-compliance 
  • Reviewing legal contracts and other documents to assess potential risk factors