http://allaboutalpha.com/blog/2007/11/25/unscrambling-the-performance-fee-egg-yields-new-insights-into-hedge-fund-returns/ Hedge funds, portable alpha, 130/30 and alpha-centric investing Thu, 18 Mar 2010 13:53:53 +0000 http://wordpress.org/?v=abc hourly 1 http://allaboutalpha.com/blog/2007/11/25/unscrambling-the-performance-fee-egg-yields-new-insights-into-hedge-fund-returns/comment-page-1/#comment-88255 allaboutalpha.com: AllAboutAlpha.com Mon, 03 Mar 2008 01:56:51 +0000 http://allaboutalpha.com/blog/2007/11/25/unscrambling-the-performance-fee-egg-yields-new-insights-into-hedge-fund-returns/#comment-88255 [...] The paper also points out the “smoothing effect” of performance fees (see related posting). “Particular circumstances may permit additional opportunities to dynamically manipulate the Sharpe ratio of a portfolio. Smoothing returns over time will leave the portfolio’s mean return unchanged but decrease its variance so smoothing returns will increase the Sharpe ratio. Funds with illiquid assets whose prices are only reported occasionally may benefit here. Hedge funds or other portfolios with high-water mark performance fees will also benefit. A standard performance contract calls for expensing the performance fee monthly but paying it only annually, but unpaid fees can be “lost” based on poor later fund performance. This contractual provision moves recorded returns from periods of good performance to periods of poor performance and smoothes the reported returns.” [...] [...] The paper also points out the “smoothing effect” of performance fees (see related posting). “Particular circumstances may permit additional opportunities to dynamically manipulate the Sharpe ratio of a portfolio. Smoothing returns over time will leave the portfolio’s mean return unchanged but decrease its variance so smoothing returns will increase the Sharpe ratio. Funds with illiquid assets whose prices are only reported occasionally may benefit here. Hedge funds or other portfolios with high-water mark performance fees will also benefit. A standard performance contract calls for expensing the performance fee monthly but paying it only annually, but unpaid fees can be “lost” based on poor later fund performance. This contractual provision moves recorded returns from periods of good performance to periods of poor performance and smoothes the reported returns.” [...]

]]> http://allaboutalpha.com/blog/2007/11/25/unscrambling-the-performance-fee-egg-yields-new-insights-into-hedge-fund-returns/comment-page-1/#comment-53582 Monday links: subprime ten-bagger « Abnormal Returns Mon, 26 Nov 2007 17:18:32 +0000 http://allaboutalpha.com/blog/2007/11/25/unscrambling-the-performance-fee-egg-yields-new-insights-into-hedge-fund-returns/#comment-53582 [...] Gross hedge fund returns look more “normal” than net hedge fund returns. Are hedge funds defined by a fee structure? (All About Alpha) [...] [...] Gross hedge fund returns look more “normal” than net hedge fund returns. Are hedge funds defined by a fee structure? (All About Alpha) [...]

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