Hedge Fund Returns

Gregory Zuckerman writes today in the Wall Street Journal ("Hedge Funds Miss Their Target") on hedge fund returns.  As I have come to expect, he does a great job with the piece.  Behind his analysis on raw returns however is an undiscussed elephant in the room.  Hedge Fund reports to their investors (existing and potential) show tremendous variety whenever the funds hold non-publicly traded assets.  Valuation problems of privately traded assets invite hedge funds to use very, very optimistic valuations of assets, particularly the stock of privately held portfolio companies that may have fallen on hard times. The funds are very reluctant to write their values down.  There are many other such examples and there is no standardization on many difficult asset valuation issues in these funds. Given the valuation problems of many hedge funds, the data on their returns is hard to trust.  In any event, a hedge fund that reports low returns, given the leeway hedge funds have on valuation, may have really had a bad year.  I have tried to get information on hedge fund reporting many times, only to be rebuffed by those in the industry -- don't ask, we won't tell.