- Research Handbooks in Financial Law series
Edited by Phoebus Athanassiou
6. Hedge fund reporting Felix Goltz and David Schröder* 104 INTRODUCTION Hedge funds employ dynamic investment strategies and enjoy a high degree of freedom with regard to the instruments that they can hold in their portfolio. In addition, they can use short selling of securities and leverage. Consequently, alternative strategies are infinitely more complex than those of traditional funds. The complexity of hedge fund investments poses a challenge when it comes to an adequate and comprehensive hedge fund reporting. Although some of the key elements of hedge fund returns can easily be captured by appropriate indicators, other aspects are much more of a qualitative nature, and are thus more difficult to formalize. This chapter serves as theoretical background to the question of appropriate hedge fund reporting practices. We outline the major challenges for hedge fund reporting and give an overview of the set of tools that is available to report the performance and risk of hedge fund investments. This chapter is divided in four sections. Section 1 demonstrates the importance and the challenges of hedge fund reporting, the regulation framework, as well as guidelines issued by governmental working groups and industry associations. Section 2 looks at the performance and risk measures used in hedge fund reporting. Although some of the standard measures are widely employed in practice, they are not always suitable from a theoretical standpoint. Section 3 examines specific issues that are of importance for hedge fund disclosure, such as leverage, liquidity, and operational risk. A final section...
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