One of the nagging questions that linger following the collapse of Amaranth Advisors is how was it possible for a firm that touted its top-level risk-management system manage to lose so much so quickly? The answer may not be forthcoming, but the question has aroused renewed concern about the level of risk control in the hedge fund industry, and what can be done to prevent another Amaranth. “Managers can instill confidence by providing readable compliance reports and by attaching notions of risk,” Phillippe Carrel, Reuters’ global head of alternative investment strategies, said in an interview with Financial News. “Investors should be allowed to see details of particular portfolios and valuations.” Risk per se is not what’s irking investors, says Tim Barker of Markit, but rather the lack of transparency associated with it. “The issues arise,” says Barker, when they are not party to this information or where the risks are subsequently discovered to have been understated.” Barker explained to FN that most large hedge funds monitor risk either with independent risk managers or third parties hired to keep a check on risk. Now, smaller firms are getting their act together, Jon Lewis of Risk Control, says, as they “see it as prudent and the investors deem it a necessary prerequisite to investment.” All this concern for risk has resulted in a boom to the technology industry, which has been developing software to deal with risk management. Observers suggest that fears that risk controls could hamper performance are unfounded. “Risk controls for hedge funds are either for periodic reporting or for front-office exposure control, but usually result from an overnight process.” Carrel notes, “Few should have implemented risk control procedures that can prevent a trade from happening.” If anything, he concludes, “risk controls might help avoid having to unwind non-compliant trades.”