With a report last week that December, followed by January, are traditionally the best months for returns, one can’t blame hedge funds if they make a list and check it twice to see whether taking on additional risk would be naughty or nice. Financial markets, reports Reuters, are experiencing high levels of volatility, something hedge funds usually thrive on. And that’s posing a problem for managers, who have to weigh whether to take on some late-year risk, or lock in their hard-fought gains while the locking is good. “Although some hedge fund managers may be tempted to take on risk in December,” Christopher Woods, senior manager director at State Street Global Advisors’ absolute returns strategies group, “this is not a good time of year to do so.” Instead, he said, “Many managers will be putting their portfolios to bed for year end.” Or will they? The temptation to jump into the risk could be great. The VIX index, which measures volatility, has been all over the place, soaring 28% after hitting a 12-year low, and then losing about half of its gains once again. Hedge fund managers, says Reuters, are looking to see if this wild volatility will continue, and if they think it will, they may not be able to hold back – especially in the currently highly volatile foreign exchange market. The key that will unlock the answer to the decision dilemma is how well particular strategies have done this year; managers of good performers may avoid the risk and instead lock in their gains. That wouldn’t necessarily make investors happy. Martin Harrison, a hedge fund specialist at GAM, said in a Reuters interview, “We would tend not to favor managers who lock in just to save their performance fee for the year.”