Long short equity hedge fund question

[wkdwnstjdTprtm]

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I have a question related to long short equity hedge funds.

1) What are some of the metrics used to perform risk analysis of long short equity funds on fund level? Volatility (standard deviation), sharpe ratio, sortino ratio, net exposure, gross exposure, and maximum drawdown are some metrics I could think of. Are there any other ones I should look into?

2) I am having some trouble differentiating b/w net exposure and gross exposure. From my understanding, net exposure is long position - short position and gross exposure if long position + short position. Also, only net exposure measures market risk, so the higher the net exposure, the higher the market risk. However, I also know that if gross exposure is over 100%, it means it is using leverage. Thus, it should have more risk too, right?

 

[BlackMamba]

For 1) I personally would consider non-parametric measures of risk like VaR or CVaR, especially if the strategy in question has significant negative skew and excess kurtosis.

 

[wkdwnstjdTprtm]

Do you use Var or CVar if there is negative skew and excess kurtosis?

 

[BlackMamba]

I prefer a measure like CVaR, since it gives some indication of what happens beyond the VaR point on the far left side of the distribution.