Hedge Funds: Less Than Meets the Eye?

From a Wall Street Journal article that online subscribers can read here:

When reporting their assets under management, hedge funds typically refer to the amount of money they have attracted from investors -- a practice long established by mutual funds and other investment firms. Many hedge funds also borrow money to increase their "leverage," which amplifies their potential returns (and potential losses). In recent months, as the market turmoil has forced many funds to cut back on their borrowing, it has become evident that some were adding in the borrowed money when reporting their size. For example, bond fund Y2K said it had assets under management of $2 billion as recently as July. But after a tough summer, London-based parent Wharton Asset Management UK Ltd. said the fund actually had less than $100 million in investor capital, and that most of the rest had been borrowed.

Leverage, double counting (as when a manager's fund of funds invests in the firm's own hedge funds) and valuation issues make the size of the hedge-fund market hard to judge. Estimates range from $2.48 billion down to $1.25 billion.

Ultra-high-net-worth investors like to talk the hedge-fund talk. To what extent are they walking the walk?