We were on the phone today with a small hedge fund manager who wishes to comply with the Global Investment Performance Standards (GIPS(R)). First, we think this is GREAT, since there is clearly a trend in this segment of the market to achieve compliance. BUT, there is a lot of confusion here, beginning with how hard can it be? Well, it aint that hard…for a hedge fund manager, that is.
Recall that the standards require that all actual, fee-paying, discretionary accounts to be in at least one composite. Okay, great. And what does that mean in the world of hedge funds?
Well, since most hedge funds managers manage a limited number of funds, where each is distinct from the others, we’re usually talking a one-to-one relationship; that is, one fund = one composite. And so,
- the return of the fund equals the return of the composite.
- the fund assets are the composite’s assets
- there is no measure of dispersion
- and since most hedge funds limit cash flows to once a quarter or once a month, the returns are fairly easy to calculate.
So, the work shouldn’t be too complex.
This doesn’t mean there aren’t issues (such as how do you deal with side pockets and how to value certain assets), but it’s definitely not as challenging as it is with most long-only managers.
If you know of a hedge fund manager that wants to comply but can use help, please point them our way! They can call (732-873-5700) or e-mail (CSpaulding@tsgperformance.com) Chris Spaulding for more details.