Since Hedge Funds/Fund of Funds report on a monthly basis usually within 10 days after the month end, monitoring and managing (hedging) potential risks is quite a difficult task. Having done some research, there seems to be some solutions to this problem.
Let's just say that there is a FoF, under which there are around 50 HFs with different strategies. Managing risk can be done on a FoF level as well as on each HF level. The latter is more tedious but offers better understanding (as in if a particular HF is a Long/Short Equity fund, its obvious that they are exposed to equity risk).
Thus far I have looked at HFRI Equity Hedge Index and regressed it against Fama-French factors. The result is not perfect (24 months rolling regression), but is alright. However, this exact approach is not yielding anything meaningful for Credit, Multi-strat, Fixed Income funds (maybe I am not using correct factors). I will probably keep trying for a while.
There are two more options - PCA and Factor Analysis. So I thought maybe there is somebody who have taken a look at this problem and is willing to share his/her experience. Any input is appreciated.