Net exposure is an invaluable metric used by hedge funds to measure the riskiness of their portfolios. It is the difference between its long and short positions, expressed as a percentage. The lower the net exposure, the less risk a fund is exposed to from market fluctuations. Net exposure should be carefully studied along with gross exposure when assessing a fund's risk profile.

Importantly, the net exposure metric does not tell the whole story about a fund's risk profile, as dynamics such as market beta, sector and asset class changes, option trading activity, and changes in margin also contribute to portfolio risk. Moreover, net exposures should not be considered in isolation, as it may be more beneficial for a fund to take on a higher level of risk in order to generate higher returns.

Net exposure is useful in evaluating the risk profile of a fund. Short positions typically have a negative net exposure, while long positions have a positive net exposure. Hedge funds can use net exposure to limit their exposure to market volatility. By holding a lower net exposure, hedge funds can reduce the risk of their portfolios being adversely affected by market movements.

Fund managers must carefully consider the level of net exposure they have in their portfolios. A fund might have a higher gross exposure and a higher net exposure, due to its exposure to multiple markets. This can create amplified market risks that are difficult to quantify or control. Thus, it is crucial for fund managers to ensure that their net exposure does not exceed certain thresholds.

Alternatively, a hedge fund might choose to reduce its net exposure by increasing its short positions relative to its long positions, or by diversifying the asset base of its portfolio. This can reduce the risk of the portfolio being hit by adverse market movements.

In short, net exposure is an important risk metric for hedge funds to consider when evaluating their portfolios and assessing the riskiness of their investments. By monitoring and controlling the level of net exposure relative to their investment strategies, hedge fund managers can better manage and minimize the risk associated with their portfolios.