The EDHEC Alternative Investment Days at the ExCeL Centre in London on 9 and 10 December will feature an exclusive preview of the results of a major new EDHEC survey on hedge fund reporting. EDHEC surveyed more than 200 single hedge funds, funds of hedge funds and institutional hedge fund investors over the third quarter of 2008. Preliminary results include the following:
– Hedge fund reporting is of crucial importance: For more than 92% of all respondents, hedge fund reporting is an important signal for a hedge fund’s overall quality
– Current reports do not satisfy investors: Investors are satisfied with the information on past returns and the frequency of their hedge fund reports. However, they are rather dissatisfied with the information they receive on liquidity risk and operational risk.
– Managers and investors disagree: Hedge fund managers and investors have diverging opinions on both the ingredients of good hedge fund reporting and its main objective. Fund managers for example believe that risk-adjusted returns are the most crucial performance measure. Investors, however, judge information on extreme risks to be far more important. Next, whereas hedge fund managers think that hedge fund reporting is important for investors as a fund selection tool, investors stress that hedge fund disclosure helps to control the fund managers’ behaviour.
– Stress tests matter for extreme risk reporting: More than two-thirds of the survey participants underline the importance of stress tests to assess the impact of extreme risks on hedge fund performance.
– Inappropriate performance measures prevail: Although not appropriate for hedge fund returns that are not normally distributed, the Sharpe ratio is judged to be the most important indicator for a fund’s risk adjusted return. Likewise, most of the funds that indicate their factor exposure to investors rely on standard linear factor models, though empirical research has established that non-linear factor exposures have been shown to play an important role for hedge fund returns.
Discussing these results with David Schrder, PhD, Business Analyst with the EDHEC Risk and Asset Management Research Centre, will be Michaela Attermeyer, Head of Asset Management, VBV Pensionskasse, Frederic Methlow, Chief Investment Officer, AVS-AHV Compensation Fund and Vincent Beaujeu-Dumontel, Institutional Sales Manager with CACEIS and Graham Phillips, PricewaterhouseCoopers LLP.
D.C.