Because net asset value drives subscriptions, redemptions, performance calculations, advertising, and fees, managers who both manage and value the portfolio have both an incentive and the ability to inappropriately over-value their portfolios.
Source quote, verbatim
Given the conflicting responsibilities, managers have an incentive and the ability to inappropriately over-value their portfolios.27
From
Kaal, Hedge Fund Valuation Retailization, Regulation, and Investor Suitability (2009), II.C Conflict of Interest of the Manager, p. 9 https://ssrn.com/abstract=1428387 · source PDF
Cite as
Kaal, Hedge Fund Valuation Retailization, Regulation, and Investor Suitability (2009). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1428387
Holds when
where the manager performs or controls valuation
where NAV is the basis for fees and performance figures
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