A Better Measure of Risk: Unencumbered Cash

A forthcoming paper argues that a hedge fund's unencumbered cash is a better measure of its risk than value at risk or the leverage ratio.

The paper's full title is: "Risk Management Framework for Hedge Funds: Role of Funding and Redemption Options on Leverage" by Suresh Sundaresan and John Dai.

Comments

[John Hempton]

By that measure we are seriously not risky. Our clients could take a cash withdrawal of 50 percent of funds under management and still leave us with margin capacity.

John

[Nick Gogerty]

it is a truism of the b-model, that liquidity in hedge funds needs to be in place. Buffett has structured himself intelligently as a public vehicle with no redemption issues.

Thanks for the post.

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