Change You Can Believe In? Hedge Fund Data Revisions

Despite the miles of column inches devoted to the hedge fund industry in the financial and popular press, relatively little is known about their trading strategies, risk profiles, liquidity needs, or potential for impact on systemic risk. In the wake of the recent financial crisis, the Securities and Exchange Commission proposed a rule requiring U.S.-based hedge funds to provide regular reports on their performance, trading positions, and counterparties to a new financial stability panel established under the Dodd-Frank Act. A modified version of this proposal was implemented in 2012, and requires detailed quarterly reports for 200 or so large hedge funds (those managing over $US 1.5 billion) and less detailed, annual, reports for smaller hedge funds. The proposal makes clear that these reports are only available to the regulator, with no provisions in the proposal regarding reporting to funds’ investors or to the public more generally.