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Risk-Adjusted Return Metrics

Since hedge funds use mainly derivatives (e.g. futures, forwards and options) and collateralised over-the-counter (OTC) instruments (e.g. interbank foreign exchange, contracts for difference, credit and correlation products) for investment and trading purposes, the degree of exposure to each underlying instrument may vary from low to high and is not necessarily a function of the AuM available for investment as in the world of traditional investing. In other words, in the world of hedge funds, leverage is a variable controlled directly by the fund manager and can typically vary dynamically from zero to 20 times or even higher. Leverage is typically accomplished using real-time margining and collateralisation facilities through prime brokers....