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Hedge Fund Valuation in Connection with Equitable Distribution

By Steven Cusumano

Over the past two decades, notwithstanding the recent economic downturn, the alternative investment industry has grown at a rapid pace, in terms of dollars flowing into the funds from investors, and the overall number of funds. Many former portfolio managers and managing directors of large investment banks have left their former institutions to establish hedge funds and other alternative investment outfits. These professionals are lured by lower levels of regulation and the ability to earn higher levels of income at an alternative investment firm than at a traditional investment bank.

Hedge funds now comprise a large portion of the alternative investment industry, and in connection with equitable distribution statutes, the valuation of a hedge fund management company and General Partner are becoming more important. Determining the proper value to ascribe to these interests is complex, and as will be discussed below, matrimonial attorneys should be aware that the value of an individual's interest in a hedge fund is often greater than just the value of his or her capital account. Additionally, given the turbulent economy, and specifically the volatility in the financial markets over the last three-plus years, hedge fund valuation presents several challenges in the field of business valuation for the purposes of equitable distribution.

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