Obtaining accurate, reliable and timely data on hedge funds is of extreme importance to a manager or analyst wishing to measure monitor and assess the returns and performance of such investment opportunities. Consistent and robust hedge fund indices and trustworthy benchmarks are also necessary and valuable when trying to obtain a clear representation of a hedge fund's track record, and the current state of the industry.
This chapter reviews a range of prominent commercial hedge fund databases and the variety of indices and benchmarks they produce. In addition, the many pitfalls and problems that need to be understood when interpreting and using such summary statistics are discussed. In particular, the inherent heterogeneity and lack of representativeness within the hedge fund universe is highlighted as a major concern in the industry. Moreover, some of the most innovative products developed in order to overcome some such shortfalls are reviewed.