# kaal:claim:1428387-006

**Claim.** Because realization events for private equity investments occur infrequently, hedge fund managers have an incentive to avoid side pockets and to use estimated valuations for those investments instead.

**Type.** mechanism  **Support.** argued

**Holds when.**

- where the hedge fund holds private equity style investments
- where performance fees cannot be charged on side-pocketed assets

**Source quote.**

> The infrequency of realization events of private equity investments creates incentives for hedge fund managers to avoid side pockets and instead use estimates for the valuation of private equity investments.

**From.** Kaal, *Hedge Fund Valuation Retailization, Regulation, and Investor Suitability* (2009), II.A Convergence of Hedge Funds and Private Equity Funds, page 6

**Cite as.** Kaal, Hedge Fund Valuation Retailization, Regulation, and Investor Suitability (2009). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1428387

**Verify.** sha256 of source PDF `6aa3a280dc6750723be2389f3af2aabf3a16c4ce20e49fcdaddd7f2ea95a67aa` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Kaal%20-%202009%20-%20Hedge%20Fund%20Valuation%20Retailization%2C%20Regulation%2C%20and%20Investor%20Suitability.pdf

**Topics.** risk-and-incentives, economics

**Keywords.** side-pockets, performance-fees, manager-incentives, valuation-estimates

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