Due Diligence Reports: A version of the “Sports Illustrated cover jinx”?
Oct 19th, 2009 | Filed under: Hedge Fund Operations and Risk Management, Today's Post
The release of a study of hedge fund due diligence reports last week was met with predictable headlines such as “Hedge funds misrepresent facts, says research“, “Is Your Hedge Fund Manager Lying To You?,” and “Some Hedge Fund Managers Don’t Tell the Truth.”
The paper, “Trust & Delegation,” was penned by an all-star cast including Stephen Brown of NYU, William Goetzman of Yale, Bing Liang of UMass and Christopher Shwarz of UC Irvine. The quartet found that 21% of fund DD reports studied contained “misrepresentations” about past legal or regulatory problems and over a quarter contained “incorrect or unverifiable representations about other topics.”
Regular readers may remember a study of the “Form-ADVs” of many hedge funds. That paper (covered in this AAA post), found that 15% of funds disclosed past regulatory infringements right on their Form-ADV (assuming, of course, they were registered with the SEC and therefore required to file one).
This new study found that over 40% of funds studied actually had such problems (around 25% fully disclosed them). So are hedge funds lying? Or is there a major difference between SEC registered funds and the universe of funds for which DD were commissioned? After all, as the authors point out: More…
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