Overstating performance; A regulatory task force should set ground rules for performance reporting by hedge funds.

Pensions & Investments, February, 2006 by Pozen, Robert C.

Byline: Robert C. Pozen Over the last decade, hedge funds have soared to more than $1 trillion in assets from less than $200 billion. Today the hottest subcategory is the fund of funds, which holds more than 45% of hedge fund assets and garners over 60% of hedge fund sales. Yet the advantages of funds of funds, or FoFs, do not seem to outweigh their disadvantages on average.

To find above-average FoFs, investors would need a better system of performance reporting. Funds of funds are popular for three main reasons: Access: By using a fund of funds, investors with smaller portfolios can meet the minimum requirements of most hedge funds, often $1 million or more. However, FoFs do not guarantee access to the best hedge funds, which might accept investments...

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