Hedge Funds: A Methodology for Hedge Fund Valuation

Hedge fund managers are more difficult to value than traditional asset management companies largely because of the variability of hedge fund revenues. This valuation difficulty represents one of the obstacles limiting the scale of consolidation in the industry to date. Other limitations to consolidation would include the inherent independence of hedge fund managers, the typical hedge fund's reliance on a small group of traders, and the relatively small client base that comprises a large portion of a typical fund's assets under management. In this article the author discusses issues in hedge fund valuation and suggests one approach to valuing such funds.