GLOBAL - Hedge fund investors were dissatisfied with issues of transparency on liquidity and operational risk exposure even before Bernard Madoff's ponzi scheme scandal came to light, suggests research from French business school Edhec.

A study surveying hedge fund managers, hedge fund investors and fund-of-hedge fund managers, most of which are based in Europe, in summer 2008 found there were already critical points of conflict in the alternative investment business prior to the discovery of this massive fraud.

"92% of all industry practitioners believe the quality of hedge fund reporting is an important signal of fund's overall quality," according to the Edhec study.

That said, investors do not seem to think information disclosure was adequate at that time, as information on fund liquidity and operational risk exposure were regarded as incomplete.

Almost 80% of respondents said they viewed issues related to the pricing and valuation of hedge funds as the most crucial element of risk reporting, followed by internal risk management and internal control, though added these aspects are considered most wanting.

Additionally, some 80% of respondents said liquidity risk is not sufficiently captured in hedge fund reporting either.

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