Friday, March 06, 2009

Selection Bias

Just great!

This is one of the problems with hedge funds. They have a bad year and just stop reporting data to the few databases which exist to collect data about hedge fund returns.

All this does is make overall industry returns look better, because there are fewer negative data points among the data that is reported.

I would imagine most of the databases anonymize data at some point. If not, they should. However, managers need to be willing to step up and let their returns be known (even anonymously if that's the only way) for the sake of the industry. It won't stop the bloodletting, and as some seem to think, we could easily be on our way back to 5000 funds (50% attrition). No matter what, the integrity of the data is of utmost importance to re-establish trust in the industry and in managers. This is one of several market oriented, non-governmental reforms that the global (and especially US) hedge fund industry needs to undertake.

That is all for now. Later!

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