Risk management

The risk management of shorting - or to more correctly describe it, short-extending - is another significant challenge. Managers must have the skills to risk manage short positions, a skill few long-only managers naturally possess, when it comes to constructing optimized portfolios in order to target a certain level of return and risk. It is crucial to have an effective risk management process in place as the consequences from being on the wrong side of the trade can be very painful.