Is Mispricing Endemic in the Valuation of Hedge Funds?

Hedge funds that value their own positions without third-party supervision face a significant conflict of interest.

Many of the most spectacular hedge fund scandals in recent years have been caused by mispricing or alleged mispricing. It’s the same story again and again: A fund invests in esoteric debt or rarefied derivative instruments and posts acceptable, even spectacular, returns.

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