The Real Public Records Revelation: Trying to Make a Commodity Look Proprietary
If you’re looking for an almost unlimited amount of free reading material, I’ve got a great website you might want to visit. There is one caveat. The material is incredibly boring. Over the past month or so, the State Employees Association of North Carolina (SEANC) has been placing legal documents on its website. These documents are the result of a series of public records requests concerning the North Carolina Teachers’ and State Employees’ Retirement Plan. SEANC and its consultant, Edward Siedel, would like to see virtually every formal document relating to each of the pension plan’s investments.
Amazingly, the production of tens of thousands of pages isn’t the most arduous part of this process, especially in the digital age. North Carolina’s public records law has a provision that exempts trade secrets from disclosure, so lawyers for each of the managers and funds have been poring over the material to determine what should be released and what should be withheld. This review process is a small financial bonanza for law firms scattered across the country. I’m sure the legal review will cost far in excess of what Mr. Siedel is paid for his report.
While SEANC has every right to ask the State Treasurer for partnership agreements, side letters, investment management agreements, and subscription agreements, this exercise is a pretty big waste of time and effort. However, the massive public records request is divulging at least one interesting aspect of the investment business. If you’re willing to spend just a little bit of time rummaging through the documents on SEANC’s website, you’ll be treated to a series of ridiculous arguments made by high-priced lawyers as they claim that some or all of the documents should be withheld. The arguments are even more inane because there’s very little consistency. Some lawyers allowed almost every bit of information to be posted, while others make impassioned arguments to avoid any disclosure.
Normally I’d lace this post with footnotes to document the absurdity of the lawyers’ arguments, but I’m disinclined to help SEANC sort through the mountains of material. Here’s a small sample of what I found.
One law firm claimed that the overall size of a fund is a trade secret and the disclosure of this information would damage the money manager and fund. Ironically, the manager reveals that very same information on its website.
Another law firm claims that the entire private placement memorandum is a trade secret. The lawyer’s letter asserts that the manager and the investor would be irreparably harmed if any of this material were revealed. The letter suggests that competitors would be able to take great advantage of the fund if the material were disclosed. Having read this impassioned argument, I then clicked on the submission for another fund, and lo and behold, all those allegedly proprietary details were there for everyone to see. The fund that is revealing all the details isn’t putting anyone or anything at risk.
There is very little in money management that is a trade secret or proprietary. Certainly there’s no non-legal reason why any terms or conditions of a fund can’t be revealed, except one reason. If money managers laid out all details, they’d have to admit that there is little if any special sauce, and that they’re peddling a commodity in fancy packaging.