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Hedge Fund Analysis and Valuation

By Glenn S. Liebman
February 27, 2007

Determining the value of a hedge fund investment is completely different from and far more complex than the relatively straightforward way of determining the value of shares of a publicly traded stock. During the past 10 years, the explosive growth of the hedge fund industry has made the analysis of hedge fund investments and hedge fund businesses an increasingly common part of the financial due diligence necessary in matrimonial cases.

According to the Center for International Securities and Derivatives Markets, in the five-year period from year-end 2000 through year-end 2005, the number of hedge funds more than doubled from approximately 3300 to over 6700. Furthermore, the number of assets managed by hedge funds during this period has tripled from approximately $400 billion to over $1.2 trillion ('The Benefits of Hedge Funds: 2006 Update', CISDM Re-search Department). Under the U.S. Securities Act of 1933, only accredited investors may invest in hedge funds. An accredited investor is defined as either a high net worth individual with an annual income of at least $200,000 or a net worth of at least $1 million, or a corporation, partnership, LLC, business trust or tax-exempt organization not formed for the purpose of investing in hedge funds and with total assets in excess of $5 million. Matrimonial attorneys should identify whether either or both of the parties have an investment in a hedge fund, or if either of the parties have an ownership interest in a business that operates a hedge fund.

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