New Managers November 2012

47N - Transparency and the search for investors

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Fraser McKenzie

This article was authored by Fraser McKenzie, Manager Partner, 47 Degrees North Capital Management is a specialist alternative investment firm, and a pioneer in early-stage hedge fund investing. It was selected as one of three successful candidates out of 97 applicants to manage the emerging hedge fund managers program at CalPERS.

47N is a leading proponent of corporate governance in the hedge fund industry; so the objective of this series of articles is to discuss and inform on current corporate governance issues.

When you come up with a good idea that you think nobody else has, decision-making gets torn between keeping it secret and informing others enough to get them interested. The world of emerging hedge fund managers is full of good ideas and "alpha" generating strategies. Indeed, it's a characteristic of early-stage investing that each new ambitious manager believes he has found something special that must be protected. So the decision becomes; how much transparency to provide in the search for investors?

Non-contentious transparency revolves around disclosure of conflicts of interest in commercial arrangements, valuation, segregation of duties and governance issues such as side letters and insider dealing. Contentious transparency, on the other hand, relates to a manager's suspicion that a potential investor will take proprietary investment information and use it themselves or pass it on to a competitor. It's not unknown for large and predatory he......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.