As hedge fund managers are limited in their ability to advertise their performance results because of the Regulation D rules, one of the ways which managers have found to market their hedge fund and distribute the performance results is through hedge fund databases.
What is a hedge fund database?
Hedge fund databases are websites which collect information and performance results from a hedge fund and then publish the information for the use of their subscribers. Subscribes to hedge fund databases are typically either high net worth investors or institutional investors like hedge fund of funds. Other service providers such as administration firms may be subscribers as well as students/academics. Subscribers will usually go through a vetting process to ensure that they meet the eligibility requirements for investing in hedge funds.
What information is included in a hedge fund database?
Hedge fund databases will include all of the basic identifying information on the hedge fund (name, manager, addresses, phone numbers, etc) as well as the structure of the hedge fund (i.e. domicile, fees, lock-up, withdrawal provisions) and any pertinent investment strategy information. In addition to these items the database will also post the performance results of the hedge fund. Depending on the database, the reports will be more or less comprehensive – that is, some databases will include information on the fund’s underlying positions and other metrics (alpha, beta, VaR, etc) while some databases will only include the fund’s most recent returns. This helps an institutional investor with some of the initial parts of the hedge fund due diligence process.
How does a hedge fund manager submit information to the databases?
Each database requires different information in order to establish listing. In addition to much of the basic factual information on the hedge fund, some databases may request a copy of the offering documents or evidence that the performance returns have been reviewed by a hedge fund auditor. Once a manager has gathered this information and completed any other items required for listing, the database will include the fund’s most recent information and performance. After the listing is initially established, the hedge fund managers will typically need to upload their performance reports on a monthly or quarterly basis. This process can usually be done by an administrative person within the hedge fund management company.
What are the costs?
Generally there are no costs associated with initiating a listing with a hedge fund database. However, many of these databases require investors to pay an initial or periodic fee in order to continue to receive the information within the database. Those databases with the highest fees tend to have the most fund listings and also tend to provide greater searching abilities which provide institutional investors with the metrics used to select potential hedge fund investments.
What are the best databases?
I have not seen any studies on which databases actually place the most assets. Obviously the best database for any individual hedge fund is the database which places the most assets in such fund. With that being said there is no reason why any particular hedge fund should not submit to multiple databases. The only issue with this is the time and costs it takes a hedge fund manager to submit the periodic information to these databases. This would be a cost normally borne by the management company (instead of the hedge fund itself) unless the offering documents specifically allowed for this expense to be incurred at the fund level.
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