Professor Stephen Brown of New York University’s Stern business school has co-written a paper investigating the representational integrity of hedge funds. Along with William Goetzmann of Yale, Bing Liang of the University of Massachusetts at Amherst, and Christopher Schwarz of UC Irvine, Professor Brown analyzed nearly 450 due diligence reports filed by hedge funds and found that 21% of the funds “frequently misrepresent prior legal and regulatory problems” and that 28% provide “incorrect of unverifiable representations about assets under management, performance and other topics,” according to a Stern press release.
The reports examined in the paper were supplied by a leading due diligence firm contracted on investors’ behalf. These misrepresentations stem from the lack of regulatory governance and transparency of hedge funds themselves, as the evaluations of the funds’ integrity are not overseen by a regulatory body like the SEC. The press release anticipates that investors, both institutional and individual, may change their investment strategies as a result of the paper’s overwhelming confirmation of misrepresentation. Professor Brown, whose expertise lies in finance and hedge funds and who has testified before Congress on the issues, stated that the lack of industry transparency is “of the greatest concern and will come back to haunt the industry.” |
