By Niki Natarajan
Institutional investors pushed and pushed and pushed for it.
And now for the most part they have it. Transparency it would
seem is more important than performance to some. Institutional
investors of course deny this as they continue to complain that
hedge fund returns are just not what they used to be.
And in part it is these pretenders that are to blame; those
that eschewed hedge funds during the dark times of information
opacity where the returns were abundant. After all if you put
everything on show then there is no mystery. Without mystery
the opportunities for dramatic arbitrage diminish.
But to be fair, another part of the blame has to go to the
evolution of information technology and the speed of its
delivery. With 4G mobile speeds taking root, the issue is no
longer about getting the information. It is about knowing which
information is important, when and why.
The Soros generation had the information edge when they knew
influential people at the central banks. Today’s
trader has live news and information feeds anytime, anyplace,
anywhere – as said in the old Martini song from the
advert popular in the 1980s that symbolises the wealth, glamour
and decadence of that decade.
Incidentally, or perhaps not so, this was also the era that
in 1984 saw the Apple Macintosh first introduced and Mark
Zuckerberg, founder and CEO of Facebook, born.
Today, if intra-minute traders like Greg Coffey drop one of
their multiple phones in the bath mid-trade, or lose reception
in a lift or a plane, then the 'decisive moment’
– and the millions of dollars that go with it
– can be lost in an instant.
Mix into this technology two measures of instant media
distribution such as Twitter then information is no longer the
secret ingredient to the performance cocktail.
Some believe that those hedge funds that rely on information
as their sole edge are struggling as the ease at which it is
now available accelerates. Add to that investor demands for
daily positions level transparency and very little is left to
The question that most funds of funds are asking themselves
as they watch the hedge fund investing industry transform in
front of their eyes is what can institutional investors with
limited resources really do with information?
In truth, most hedge fund investor apprentices are turning
to managed account platforms and ex-consulting advisers to
translate the data and process it.
Does this processing, aggregating and repackaging really add
any value when done by people that might not actually know how
to make the most of it? Has this need for transparency become
an addiction with its own destructive downside? Like too many
vodkas, is too much transparency bad for performance? And by
asking for it, have investors inadvertently polluted their own
performance pot? Panellists discussing this at the recent
InvestHedge Forum believe not (pages 28-29).
The biggest unanswered question however, is that once an
investor has been given the transparency they desire, are they
then liable if and when something should go wrong? With
everyone cutting fees at the discretionary level, who gets the
blame when things go wrong?
But as Aomame in Haruki Murakami’s 1Q84 says,
"Where there is light, there must be shadow, where there is
shadow there must be light. There is no shadow without light
and no light without shadow... But where there is a shadow;
there is always light on the other side."
So what is the light on transparency’s dark
side? Funds of funds are already seeing a return of the
prodigal investor who is seeing the value of their skills as
advisers to make money from all of this transparency and not
just to process it.
With rapidly eroding future liabilities and an increasingly
greying population that Ash Williams of Florida State talked of
at the Forum, pension funds will return to reason.
And they will see that those intermediaries with a decade or
two of 'proven’ hedge fund investing experience
such as that seen at the InvestHedge Awards (page 20) might
actually be worth the price – even if it will most
definitely be lower than in the past.