Out of every five hedge fund managers, one is prone to fibbing, according to research from NYU's Stern School of Business. This is likely to pour salt in the wound of an industry that's been in rough shape for the past year. And, it'll probably add a bit more pressure for transparency.
The NYU report uses data from 444 due diligence reports that investors commissioned from 2003 to 2008. The research team put the information against the test of reality to see where the differences are. The most common stretch of the truth was the amount of their own money the managers put into their hedge funds, fund performance and regulatory and legal histories. One fund inflated its assets under management by $300 million, while another wasn't up front about one of its partner's legal records (he had stolen a Chinese junk).
In 42% of due diligence reports, the NYU team found "misrepresentations or inconsistencies." Sometimes, this was because of fund manager unfamiliarity with internal procedures and legal processes, but 21% of the time, the report says that the "manager verbally stated incorrect information."
The study looked at funds with assets under management of up to $8 billion and fund managers with average experience levels of 19 years.