Professors Veronika Pool of Indiana University and Nicolas Bollen of Vanderbilt University studied monthly returns of more than 4,200 hedge funds between 1994 and 2005 and have concluded that "hedge fund managers purposefully avoid reporting losses by marking up the value of their portfolios," according to an article on Institutional Investor's website. The issue of course is how to deal with illiquid securities. There may be sound reasons for not reporting losses. The authors acknowledge that the results may merely suggest a certain optimism about hard-to-value assets in their portfolio, not unlike many individual investors' blind faith that a stock will always rebound. The study does highlight the fact that a lot of funds have more discretion than many realize when it comes to reporting.  

For more:
- here's the article

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