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The research found that the returns to the funds fell by 4 per cent annually on average after they began reporting – and recovered for the test group of funds that went the other way, from reporting to not reporting. The research did not present any conclusions as to why this effect was evident, but discussed the possibility that funds that were content to take more risk when they were not reporting became more conservative once they began – the study did not examine the effect on risk-adjusted return.
Further, while it is impossible to be sure that other funds were "free-riding" on revealed positions of reporting funds without transparency into the portfolio positions being reported to the SEC, regressions revealed a significant rise in the r-squared coefficient of determination between a fund's returns and broader hedge fund returns once it began reporting.
Hedge funds appear to become more like one another when they begin reporting portfolio positions to the SEC. Finally, the study found that investors' fees were on average 1 per cent higher for the same fund after it began reporting to the SEC, compared with before.
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