Dr Tarun Ramadorai of the Said Business School and the Oxford-Man Institute
New research by Oxford University and Duke University suggests that voluntary disclosures by hedge funds about their monthly investment performance are unreliable. The researchers tracked changes to statements of historical performance of over 18,000 hedge funds recorded in publicly available hedge fund databases, at different points in time between 2007 and 2011. They found that as many as 40 per cent of funds (around 7,000 individual funds) revised their previously reported performance, sometimes many years later, with more than a fifth of funds later changing a previous monthly return by at least 0.5 per cent.Their analysis also reveals that, on average, funds that revise their histories subsequently underperform significantly, when compared with funds that have never revised their reported performance. The researchers say that unreliable disclosures could be interpreted as a valuable signal for current and potential investors about future hedge fund performance. Professor Andrew Patton, Tarun Ramadorai, and Michael Streatfield, CFA, suggest that the changes they detected to statements of historical performance are not random or mere corrections of earlier mistakes. Rather, they found these revisions were clearly associated with the characteristics and past performance of hedge funds. Indeed, their analysis finds that revisions are more common among more volatile, larger, and less liquid funds.
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