Opalesque recently published an interesting perspective by Agecroft Partners on the lack of consistency across the hedge fund industry on how net performance is calculated and presented.
The author rightly pointed out that calculating and presenting net performance is not simply a matter of subtracting all fees and expenses from gross returns - simple changes to expense allocations, valuation guidelines, fee breaks on founders’ share classes, the passage of time etc. can all skew the calculation and presentation of net performance.
The good news is that the CFA Institute is composing performance presentation standards for the hedge fund industry which they are expected to announce later this year. If broadly adopted, the standards could level - and perhaps simplify - the playing field for all managers.
Emerging managers should closely watch this space. Early adoption may be one way a start-up manager can demonstrate a commitment to transparency and set itself apart from the start.
Investors need consistency in how performance is calculated and presented, with enhanced disclosure, in order to make the best possible investment decisions