Press Releases

New Research Reveals that One in Five Hedge Funds Misrepresent Funds and Performance to Investors

NEW YORK--NYU Stern Finance Professor Stephen Brown, with co-authors William Goetzmann from the Yale School of Management, Bing Liang from the University of Massachusetts at Amherst and Christopher Schwarz from the University of California at Irvine, examined 444 hedge fund due diligence reports supplied by a major hedge fund due diligence firm hired on behalf of investors. They found that hedge funds frequently misrepresent prior legal and regulatory problems (21 percent of cases) and provided incorrect or unverifiable representations about assets under management, performance and other topics (28 percent). Nine percent of the sample said they had no legal or regulatory problems when in fact they did, and six percent disclosed some problems, but not others.

Because the fiduciary responsibility to assess the integrity of hedge funds currently rests with the funds themselves (versus with a regulatory body such as the Securities and Exchange Commission), this report may affect the investment strategy of institutional and individual investors and influence regulatory governance in the hedge fund industry.

“Operational transparency is essential to financial intermediation. In the past, the industry has been opposed to transparency, and this study shows that some funds are unwilling to be forthcoming even to their own investors and potential investors. It is this lack of information, this lack of transparency at an industry level, that is of greatest concern and will come back to haunt the industry,” said Stephen Brown.

To read the full paper visit:

Professor Brown has extensively studied hedge funds and he has testified before Congress on hedge fund-related issues.

To speak with Professor Stephen Brown, please contact him directly at 212-998-0306,, or contact Rika Nazem in NYU Stern’s Office of Public Affairs, 212-998-0678,

October 14, 2009: