When doing a hedge fund report, the most important thing to remember is the current industry standard. And that is that the performance numbers must comply with GIPS and AIMR. AIMR stands for the Association of Investment Management & Research, while GIPS refers to Global Investment Performance Standards.
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GIPS is essentially the internationally acceptable standard of the AIMR PPS (Performance Presentation Standards), and since 2006 has replaced the AIMR-PPS. In short, while AIMR is a talking point in the industry, any best-practice methodology is now based on GIPS.
In order to be in line with the demands on GIPS, performance reports must allow easy tracking of cash flows from investors for various accounts with different beginning and ending dates and asset sizes. These composite returns must address computation standards, from input data and calculation methodology to disclosures and the actual presentation.
The key output here is a transparent fund-administration document from the input data and calculation stage. These explain crucial variables like trade date accounting, time-weighted returns, valuation, and accruals of income and expense. Disclosures and reportage sections are mainly for firm-level needs; a good report must be clearest at the fund level.
Finally, remember that a hedge fund is a single portfolio with individualized fee arrangements; it is not a composite, so there’s no need to aggregate the participants’ returns in performance reports.
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Scott Tominaga is the COO of PartnersAdmin LLC. He has over 17 years of experience in the hedge fund and financial services industry. For similar updates, follow this Twitter page.
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