Hedge Funds Nitty-Gritty Series Post 1 Beware of the Numbers From my personal experience, some people tend to believe (although the institutional investors community would generally disagree) that when it comes to hedge fund returns, the higher they are the better. In reality, however, the situation is much less clear-cut. Firsrtly, the risk tolerance and return expectations for every investor are different, and therefore her/his assessment of a high-performance hedge fund will also be different. For instance, there is a general preference for lower risk/lower return funds among Japanese institutional investors. But secondly, and even more importantly, the returns alone don't tell the whole story. In this post I'd like to describe some of the metrics and concepts that are used for hedge funds due diligence when assessing the risk/return profile (operational and investment strategy due diligence are broad subjects that deserve a separate in-depth review).