6. Risk management overview
g. describe risk management of alternative investments.
Why is it difficult to manage risks of alternative investments?
Managing risks associated with alternative investments can be challenging because these investments are often characterized by asymmetric risk and return profiles, limited transparency, and illiquidity.
What are the three reasons it is critical to do due diligence for alternative investments?
To make sure that:
1. a potential investment is in compliance with its prospectus
2. the appropriate organizational structure and policies for managing investments, operations, risk, and compliance are in place
3. the fund terms appear reasonable.