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Hedge Funds Unprepared for August Volatility: Survey

The Buy Side's risk systems weren't much of a help during the volatility of the late summer.

In a survey of more than 90 members of the buy-side trading community at a Thomson Reuters Forum held in September, 73 percent of managers and 66 percent of investors said that their systems did not help them prevent losses during the turbulent trading days of August 2011.

This is despite the fact that all respondents had risk management tools in place, the survey found.

"The hedge fund industry is coming under increased regulatory scrutiny across the globe and controlling risk has become increasingly important for investors and managers. The results of our poll, however, confirm that a number of hedge funds are still locked into legacy technology that lacks the agility to adequately respond to changing business and regulatory drivers," says Gerry Buggy, global head of enterprise content, Thomson Reuters.

Other key findings of the poll include:

* 93 percent of respondents did not think the Dodd-Frank Wall Street Reform and Consumer Protection Act would prevent another financial crisis.

With 10 representing "very effective," the effectiveness of three specific parts of Dodd-Frank regulation were analyzed by respondents as follows:

* The requirement that states hedge funds with $150 million or more in assets should register with the SEC received only 4.5 out of 10

* The effectiveness of increased authority and oversight of the derivatives market received 4.4 out of 10

* The establishment of the Financial Stability and Oversight Council scored only 3.8 out of 10

Video coverage of the Thomson Reuters Forum can be viewed here.

Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio

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