Hedge Fund managers should assess and evaluate their appetite for risk with respect to the given investment strategy. Furthermore, the Hedge Fund manager should ensure that it makes investment decisions within the parameters of the Hedge Fund’s mandate.

Setting risk parameters helps both those implementing the strategy to benchmark the risks of the investment strategy as well as to inform investors as to how the Hedge Fund manager is going to manage these risks. Individual Hedge Fund managers may have many different views on the risks involved in their investment strategies as well as the best metrics and methodology employed to monitor these risks. Risk parameters also add clarity to the investment process and strategy.