Subprime risk management lessons
Subprime risk management lessons
Subprime risk management lessons
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Lessons for Investors in Bear’s Funds1. Realized HF returns are NOT a good measure of <strong>risk</strong>. Need to understandwhat’s generating return. In fact, persistent positive returns with highautocorrelation are a warning sign2. Demand full <strong>risk</strong> transparency and understand what’s true alpha and what’salternative beta (e.g., carry generated through credit, term, fx, vol, etc.)3. Avoid Illiquid Assets + Leverage + Short Gamma (or accelerating losses)Short Gamma vs Linear positionProfitMarket downMarket upLosswww.<strong>risk</strong>metrics.com 5
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