Stale pricing has not yet become a problem in the hedge fund industry as it has for mutual funds, but still could catch the eye of regulators as the potential for abuses exists, Dow Jones reports.
Hedge funds report on their performance on a monthly basis, a matter that is complicated by the fact that the funds often hold illiquid securities that take a long time to calculate and verify by an independent auditor. Funds-of-hedge funds can take even longer because they have to gather information from several hedge funds.
Some funds of hedge funds impose a strict cutoff date for reporting data, and if that deadline is not met, the fund uses the previous months information to do its calculations. This leads to potential problems because investors moving in or out of a fund are not getting prices that are truly reflective of the recent months performance.
Hedge funds generally do not have to deal with rapid in-and-out trading of its funds, as they typically allow redemptions just a few times each year. Hedge fund investors generally are much more concerned with accurate valuations, rather than the time frame in which they are calculated.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.