Hedge fund managers endured another public flogging last week with the release of the CFA’s annual “Financial Markets Integrity Index”. The index is based on survey results from about 2,000 CFA Charterholders around the world. Not surprisingly to some, hedge fund managers weren’t really highlighted for their “integrity”. As the press release from the CFA Institute Centre for Financial Market Integrity trumpeted:
“U.S. CFA Charterholders’ Trust in Hedge Fund Managers and Corporate Boards in Decline, Reports 2009 CFA Institute Centre Financial Market Integrity Index”
But a closer look at the 2009 results and a comparison of those results to previous years will take the sting out of these numbers for the vast majority of CFA- (and CAIA-) card-carrying hedge fund managers who value integrity above all else.
The chart below from the report (available here) shows the perceptions of various groups on a scale of 1 (jerks with no integrity) to 5 (“integrity” is their middle name):
As you can see, the perception of hedge fund manager integrity needs some work. However, hedge fund managers have never been particularly popular among this group. In fact, the reported “decline” in trust this year was a whopping 0.2 on a scale of 1-5. This was equal to the average decline across all groups. Even pension fund managers – who were singled out by the Centre for having the highest rating – took a hit (-0.1). In fact, all groups took a hit this year except “mutual fund managers”.
Going back to the US results from 2007 also provides some useful context for these numbers. The overall perception of financial professionals has fallen steadily since the annual survey was launched (3.5 in ’07, 3.4 in ’08 and now 3.2 in ’09). Yet the perception of hedge fund managers has remained the same as it was in 2007 at 2.4 after a brief uptick in 2008. We created the following chart from data drawn from the past 3 surveys…
As you can see, the sell-side analysts are the ones whose perception has taken a beating, not the hedge fund managers. Even the much maligned corporate boards, which suffered the worst decline this year, are still only back to where they started in 2007.
The picture was slightly different across various countries. In Hong Kong, the perception of hedge fund managers’ integrity actually fell by less than average (-0.1 vs. an average 0f -0.2) and actually held up better than that of the much ballyhooed pension fund managers (who also dropped 0.2).
In Switzerland, the drop in perceived hedge fund integrity was so small that it wasn’t even statistically significant, according to the survey report from that country.
Hedge funds continue to have a bad rep in Japan, however, where their score fell 0.3, enough to tie the equally disparaged sell-side analysts.
At the end of the day, this survey only reports respondents’ perceptions of each group’s integrity, not, of course, their actual integrity. While the hedge fund industry has its fair share of fraud, perceptions can be self-reinforcing and are usually based on media reporting of salacious incidents and, truth be told, surveys that suggest hedge fund managers have less integrity than other market participants.