Inflation or deflation and geopolitical issues are considered the top two risks facing hedge funds from a ranked list of ten, according to hedge fund executives surveyed by Beacon Platform. This is followed by exchange rates and asset class volatility, while they were least concerned with third-party failures and regulatory changes.
The study surveyed 100 senior hedge fund executives from the US, UK, Germany, Switzerland, France, Italy, Sweden, Norway, and Asia, collectively managing $901bn in assets.
Notably, a significant divergence in risk perception was observed between executives and investment analysts (IA) or portfolio managers (PM). While C-suite executives focused on broader risks, IAs and PMs ranked IT failures as their second-highest concern.
The survey revealed that larger funds, managing between $25bn and $50bn in assets, were significantly more concerned about inflation, deflation (8.7/10), and geopolitical risks (8.1/10), rating these concerns 30% higher than the overall group average.
Participants were also asked to evaluate major risk management challenges for hedge funds and assess their own systems’ performance against these challenges.
The top-ranked challenge was maintaining control over models and algorithms, followed by understanding overall exposure and minimising latency in complex risk calculations. While the group rated themselves highest in achieving comprehensive coverage of all traded products within the same system, they scored lowest on their ability to reduce calculation latency.
As hedge funds grow, their priorities and risk management capabilities evolve, the report found.
The smallest funds, managing under $1bn, prioritised accuracy, exposure tracking, and adaptability as they built and refined their systems. Medium-sized funds, managing between $1bn and $10bn, focused on model control, calculation speed, and system resilience to support the increasing complexity of their portfolios.
Meanwhile, the largest funds, with $10bn to $50bn in assets, emphasised achieving full asset coverage, accurate exposure calculations, and timely results to enable actionable insights.
