The dirty little secret for a lot of investment advisors and brokerages is that it's really hard to deliver an appropriate measure of true investment return to the client. This is especially true of hedge funds, where the reported return figure, in the media especially, often doesn't even factor in management and performance fees.

So, a recent study by professors at Emory's Goizueta Business School and Harvard Business School is very interesting for its attempt to measure dollar-weighted returns for hedge funds, which is seen by many as a better measure for end investors, as these returns account for the amount of money and time actually invested.

The study distinguishes this return measure from a more common figure that assumes an investor buys and holds a constant amount of fund shares over the entire life of a fund (the buy and hold return rate).

The study concludes that the hedge fund portfolio buy-and-hold return over 1980-2008 was 12.6 percent, while the corresponding dollar-weighted return was only 6 percent (accounting for fees), compared to the S&P 500's 10.9 percent return over the same period. The dollar-weighted performance was barely above the 5.6 percent risk-free rate (Treasuries), notes CNBC.

So, what to make of this? It confirms the general thinking among critics of hedge funds that actual investors tend to do less well than the funds themselves, and certainly the fund managers. Yet, I doubt this will put a dent in the heavy demand for funds, even among retail investors.

For more:
- here's the study
- here's a CNBC article

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