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Best Practices in Identifying and Monitoring the Systemic Risks of Hedge Funds

Best Practices in Identifying and Monitoring the Systemic Risks of Hedge Funds. Presenter: Heather Smith Deputy Head, Investments and Securities Division Cayman Islands Monetary Authority. CIMA actively regulates funds.

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Best Practices in Identifying and Monitoring the Systemic Risks of Hedge Funds

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  1. Best Practices in Identifying and Monitoring the Systemic Risks of Hedge Funds Presenter: Heather Smith Deputy Head, Investments and Securities Division Cayman Islands Monetary Authority

  2. CIMA actively regulates funds

  3. Promoting separate regulatory frameworks = greater innovation, flexibility, and creativity

  4. CIMA’s Regulatory Objectives for Private Funds are to… • Compel proper disclosure • Provide investors with valuable information

  5. Can 1 Hedge Fund pose a Systemic Risk? NO But…

  6. Hedge Funds Could Collectively Cause Systemic Risk

  7. “I'm not worried about 8,000 hedge funds, ... I'm worried about 400 or 500 of them - that's what could start the ball rolling down the hill. While most hedge fund managers are pretty smart and knowledgeable, it doesn't take too many to start a rout. One nervous cow and you could start a stampede.” -Jim Melcher, founder & president of Balestra Capital taken from interview with CNN/Money staff writer Amanda Cantrell in November 2005

  8. Primary areas of Systemic Risks

  9. Liquidity

  10. Leverage: Fact vs Myth

  11. Investment Strategy

  12. Enabling Effective Oversight

  13. Common Challenges for Regulators

  14. Best practices must come from within the global hedge fund community

  15. Best Practices

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