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What is the failure rate for new hedge funds?
Asked by Dan Constantine

Answer By

True failure rates are hard to determine because hedge funds are self reporting. If congress passes regulations requiring hedge funds to register with the SEC, which many believe will happen in the fourth quarter of 2009, we will have more substantial data to report failure rates. Academic studies often over state failure rates in hedge funds because they use "attrition" rates as a measure. Using "attrition" rates is a common way to measure mutual fund failure rates because mutual funds only stop reporting when they go out of business. However, Ed Easterling, author of "Hedge Fund: Myths & Facts", finds that hedge funds are twice as likely to stop reporting because of good performance than poor performance because they are no longer trying to attract investors.

Alex Thompson
HedgeCo Networks