The Edhec Hedge Fund Reporting Survey targeted 214 hedge fund managers, investors and fund of hedge funds managers, mostly in the UK, Switzerland, and France. Its authors, Felix Goltz and David Schroeder, identify critical points of conflict in the alternative investment business.

Ninety-two per cent of all industry practitioners believe that the quality of hedge fund reporting is an important signal of a fund's overall quality, and thus pivotal for investors' decisions about hedge fund investment.

However, information disclosure is not viewed as adequate by investors. Although they are satisfied with the information on past hedge fund returns, the information on fund liquidity and operational risk exposure is regarded as incomplete.

The industry views issues related to the pricing and the valuation of hedge funds (identified by more than 76 per cent) as the most crucial elements of operational risk reporting.

Information on internal risk management (60 per cent) and internal controls (48 per cent) are also seen as major aspects. When asked whether the information provided on operational risk is sufficient or meets their demands, investors reply that exactly those aspects that are considered most important are those that are considered most wanting; that is, information on a fund's valuation framework and on the internal controls a fund puts in place.

Liquidity risk is considered a major source of risk for hedge funds, especially for hedge fund investors, more than 80 per cent of whom classify this source of risk as "very important". Yet this clear view contrasts sharply with the industry's satisfaction with the current coverage of liquidity risk in hedge fund disclosure. Some 80 per cent of all respondents state that liquidity risk is not sufficiently captured in hedge fund reporting.

Click here to read the full survey.