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Vortragende Person/Vortragende Personen:
Florian Weigert (Universität St. Gallen)

Unobserved Performance of Hedge Funds

Vikas Agarwal, Stefan Ruenzi, and Florian Weigert

Abstract
We investigate hedge funds’ unobserved performance (UP), measured as the risk-adjusted alpha of the difference between a fund firm’s reported return and the hypothetical portfolio return derived from its disclosed long equity holdings. Fund firms with high UP outperform fund firms with low UP by more than 6% p.a. after accounting for typical hedge fund risk factors and fund characteristics. In particular, UP predicts future performance better than past fund performance or past performance derived from long equity positions. We find that high UP is (i) positively associated with measures of managerial incentives, discretion, and skill, and (ii) driven by a fund firm’s frequent trading in equity positions, derivative usage, short selling, and confidential holdings.

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