More so than the disconnect between what CROs and COOs look at, Mark Connors, founder of Risk Dimensions, who left Stamford, Conn.-based hedge fund Diamondback Capital as its head of fixed-income and counterparty risk in January 2012, says there has always been a disconnect between a hedge fund’s risk group and its investment group in terms of reporting and daily workflow. The ideal scenario is that hedge funds’ risk systems can develop reports that analyze what happens if multiple factors go awry. But Connors says that only about 10 percent of firms are really trying to develop this, and that’s not because it’s a technology challenge. The real reason, he says, is mental.
“Behavioral, behavioral, behavioral—that’s it,” Connors says. “It’s a case of the manager saying: ‘You’re not hearing what I’m thinking.’ You’re used to seeing something one way. Risk departments have left a lot on the cutting room floor that’s not either offered to or picked up by the investment team, which has the potential to add a dimension the manager is not currently seeing. It has been this way forever.”READ ARTICLE