Hedge Fund Disaster Facilitated by Misleading Back-Test

Posted on October 6th, 2015 at 1:36 PM
Hedge Fund Disaster Facilitated by Misleading Back-Test

From the Desk of Jim Eccleston at Eccleston Law LLC:

According to the New York Times, a Connecticut based hedge fund, Spruce Alpha LP Fund, misrepresented its performance to investors and has lost 48% of its value during the month of August 2015.

Spruce Alpha, managed by Spruce Investment Advisors, was launched a year ago and reportedly used a complex and controversial trading strategy that involved derivatives to amplify returns from trading in exchange-traded funds, or ETFs, of various strategies.

To sell the hedge fund to investors, Spruce pitched to investors that the fund could offer large returns in periods of market turbulence. To support that claim, Spruce simulated hypothetical performance by back-testing the strategy going back to 2006. That back-testing purportedly showed that “at the height of the 2008 financial crisis, investors would have had a gain of more than 600 percent.”

Back-tested results in hedge fund marketing materials have long drawn scorn in the hedge fund world. The results typically are re-created with the benefit of hindsight, making it easier for a fund to post hypothetical good results.

The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services.

Related Attorneys: James J. Eccleston

Tags: Eccleston Law LLC, James Eccleston, eccleston, Eccleston Law, New York Times, Spruce Alpha LP Fund,

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