Bias ratio detecting Hedge-Fund return smoothing

by Olivier Le Marois and Raphael Douady, 2008

The latest version of FOFiX, Riskdata’s core risk management application, includes a new indicator called the Bias Ratio, that helps in monitoring hedge funds and completing due diligence. This new indicator can assist in detecting manipulation of the Net Asset Value (NAV) when illiquid securities are involved. In addition, the Bias Ratio feature can help recognize the presence of illiquid securities where they shouldn’t exist.

The Bias Ratio indicator was created by Adil Abdulali, Risk Manager at Protégé Partners, who developed it through hands-on experience while trading on the sell side, managing a hedge fund and investing with managers. The Bias Ratio relies on analyzing fund returns to measure how far they are from an unbiased distribution. The Bias Ratio of an equity index will typically be close to 1. On the other hand, the Bias Ratio of a fund that smoothes returns is much higher.

* FOFIX product doesn’t exist anymore in its original form but we can still provide you with all its features. Please contact us to have more information.