INDEX OF DEFINED TERMS - Banca di Legnano

Level: 2 – From: 2 – Wednesday, July 21, 2010 – 11:55 – eprint6 – 4247 Section 02
Risk Factors
meet repurchase requests or other funding requirements.
• Hedging risks: A fund may in certain cases employ various hedging techniques to reduce the
risk of investment positions. A substantial risk remains, nonetheless, that such techniques will
not always be available and when available, will not always be effective in limiting losses. A
fund may take substantial unhedged positions.
• Interest rate risks: The values of securities held by a fund (or by any underlying fund) tend
to be sensitive to interest rate fluctuations and unexpected fluctuations in interest rates could
cause the corresponding net asset values of a fund’s positions to move in directions which
were not initially anticipated. To the extent that interest rate assumptions underlie the hedge
ratios implemented in hedging a particular position, fluctuations in interest rates could
invalidate those underlying assumptions and expose a fund to losses.
• Absence of regulation: A fund will generally not be regulated under the laws of any country
or jurisdiction. As a result, certain protections of such laws (which, among other things, may
require investment companies to have disinterested directors, require securities to be held in
custody and segregated, regulate the relationship between the investment company and its
adviser and mandate investor approval before fundamental investment policies may be
changed) do not apply to a fund. This absence of regulation may adversely affect the
performance of a fund.
• Suspension of trading: A securities exchange typically has the right to suspend or limit
trading in any instrument traded on that exchange. A suspension could render it impossible
for a fund to liquidate positions and thereby expose a fund to losses.
• Dependence on key individuals: The success of a fund is dependent on the expertise of its
managers. The loss of one or more individuals could have a material adverse effect on the
ability of a fund manager to direct a fund’s portfolio, resulting in losses for a fund and a
decline in the value of a fund. Indeed, certain fund managers may have only one principal,
without whom the relevant fund manager could not continue to operate.
• Experience of fund managers: Certain funds may be managed by investment managers who
have managed hedge funds for a relatively short period of time. The previous experience of
such investment managers is typically in trading proprietary accounts of financial institutions
or managing unhedged accounts of institutional asset managers or other investment firms. As
such investment managers do not have direct experience in managing funds or hedge funds,
including experience with financial, legal or regulatory considerations unique to fund
management, and there is generally less information available on which to base an opinion of
such managers’ investment and management expertise, investments with such investment
managers may be subject to greater risk and uncertainty than investments with more
experienced fund managers.
• Risk of fraud: There is a risk that a fund manager could divert or abscond with the assets,
fail to follow agreed-upon investment strategies, provide false reports of operations or engage
in other misconduct.
• Performance compensation payable to fund managers: The performance-based
compensation paid to a fund manager is typically calculated on a basis that includes
unrealized appreciation and may consequently be greater than if such compensation were
based solely on realized gains. Each fund generally calculates its own performance
compensation based on its individual performance, irrespective of increases in the overall
value of the fund. Furthermore, when the fund is rebalanced and an unprofitable underlying
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