Before the credit crunch, hedge fund performance was a matter for managers and their investors alone.
The seeds of greater transparency were planted in the wake of Long-Term
Capital Management’s near collapse and bail-out in 1998.
Two years later, a closed meeting in America on the topic, including senior managers from Caxton, Citadel, Soros Fund Management and Tudor Investment Corp, and institutional investors agreed that ‘sufficient transparency’ rather than full disclosure, was appropriate.
Nederlof says: “It’s a moving standard, asking in effect what does a fiduciary need for investors to trust him sufficiently, such as risk management, aggregate risks, and details to allow fiduciaries to assess style drift? Just [providing] returns was not enough.
“Position level data, on the other hand, may be too much as not all investors will know how to analyse it, or what to do as a result. Failure to act appropriately once the data is available, may in itself, be a risk,” he says.
Investors such as PAAMCO receive detailed information from managers. “The more we know about a manager and what’s going on inside, the more we can ‘finesse’ the investment.”