The fast-growing hedge fund industry has overstated its promise to give investors above-average returns and instead concealed often mediocre performances through opaque reporting techniques, The New York Times reports.
Wealthy investors are reportedly attracted to hedge funds by promises to protect against market downturns, according to a study conducted by a research group known as Analysis Group.
The new study challenges the validity of claims by various hedge fund providers, including CSFB/Tremont and Van Hedge Fund, to repeatedly outperform the Standard & Poor's 500 Index while keeping a lid on volatility.
These claims break down, according to the study's authors, after factoring in the mediocre performances of hedge funds that are omitted from the index. Hedge fund providers are under no obligation to include the track records of fledgling hedge funds into aggregate statistics used for sales purposes.
Other hedge fund providers succumb to a practice known as "survivor bias." This technique involves creating blackout periods in reporting investment results, such as suspending monthly reports, when performance is down or the fund is expected to close.
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.