When A 4000% Hedge Fund Return Is A Mirage

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Michelle deBoer-Jones
Published on
Updated on
Editor’s note: This article is part of a series ValueWalk is doing on tail risk hedge funds. The series is based on several weeks of research and discussions with over a dozen experts in the field. All the content will be first available to our premium subscribers and some will be released at a later date for all readers. If you want to  see the full series and support us please click here. Many tail-risk hedge funds posted astonishing gains during the March selloff, with at least one fund reporting a gain of over 3,000%. However, it's important for investors to read between the lines when it comes to choosing which hedge funds to invest in. Whenever looking at the returns of any fund, especially tail-risk funds, it's important to make sure you're doing an apples-to-apples comparison by using the same measurement of returns across all the funds you're comparing. Some tail-risk hedge funds report their returns in a different way than how most hedge funds report their returns, making it seem like their returns are much higher than they actually are compared to other funds. In some cases, that 3,000% return may actually be more like 30% when switching to the same method for reporting returns that most hedge funds use. You may even discover that the fund that reported the 3,000% return underperformed its peers which reported using the standardized method for reporting returns.

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Michelle deBoer-Jones is editor-in-chief of Hedge Fund Alpha. She also writes comparative analyses of stocks for TipRanks and runs Providence Writing Services. Previously, she was a television news producer for eight years, producing the morning news programs for NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spending a short time at the CBS affiliate in Huntsville.