Study shows fears over hedge fund risk pre-Madoff

LONDON (Reuters) - A survey published on Friday has highlighted disquiet among investors over hedge fund risk in the months before the Madoff scandal emerged.

A study carried out by French business school Edhec, showed that hedge fund investors were concerned about disclosure on liquidity and operational risk exposures.

The Edhec Hedge Fund Reporting Survey, which targeted 214 hedge fund managers, fund of hedge funds and hedge fund investors in the summer of 2008, found that 80 percent of respondents felt liquidity risk was not sufficiently captured in hedge fund reporting.

Most respondents also said that the quality of hedge fund reporting is a key signal of a fund's overall quality.

Hedge fund disclosure has come under the spotlight after U.S. financier Bernard Madoff was accused of running a $50 billion Ponzi scheme.

The Edhec survey found huge disparities between hedge fund managers' perception of relevant information disclosure and their investors needs.

While hedge fund managers said information on risk-adjusted returns is relatively more important to investors, investors stressed the relevance of information on past returns and extreme risks.

Edhec also said that guidelines and best practices issued by industry associations such as the Hedge Fund Standards Board and Alternative Investment Management Association fell short of providing sufficient guidance on hedge fund disclosure.

"These guidelines... rarely provide guidance on sound hedge fund disclosure. Many of the guidelines are vague and cover topics that are already standard disclosure," the survey said.

Most of Edhec's respondents are based in Europe and are medium-sized companies with assets under management of between 100 million euros ($129.6 million) and 10 billion euros.

($1=.7719 Euro)

(Reporting by Raji Menon; Editing by Sharon Lindores)