An article by Tony Boyd in Saturday's AFR bought up the key words of "hedge funds" and "insider trading" which is always good for a headline if nothing else. The Article was focused on ASIC's concern that some investors might be trying to access broker research on specific companies prior to it being released to all clients, and thus being generally available.
This has some serious implications especially as a number of overseas funds have been caught up in insider trading investigations, most recently SAC Capital in the US where an individual is under investigation by the SEC, which has resulted in redemption notices for over $1.7bn being lodged by the fund's external investors. That's a significant chunk of external money, which reportedly only makes up about 50% of the total external FUM - the balance being internal - founders' and staff.
Back to the AFR, where the article focused on a large global, offshore fund trying to access a broker's research prior to general release. As an ex broker I can recall plenty of instances of some investors knowing what's in the research pipeline, and there's obviously a grey area between company information, and broker disseminated information. There's no doubt that large institutional investors, including hedge funds get access to information not generally available to retail investors, whether by their added research capacity, or by investor briefings directly from the company itself, or through broker presentations.
This became more and more of an issue as institutions established formal broker panels post the '87 crash, with a heavy weighting to the quality of individual research analysts as part of the process. Meanwhile many institutional fund managers promote the number of company visits they make each year as one of their key strengths. Even though they may not be provided with what might be conventionally termed inside information, they are certainly ahead of the information curve compared with retail investors.
The difficulty here is how strictly to draw the line between "dodgy, and deliberate" inside information, such as that being investigated over option trading in Heinz's stock prior to last week's proposed acquisition by Warren Buffett, and "general information" provided by brokers or management.
The reality is that institutional investors, hedge funds or otherwise, will ALWAYS be at an information advantage. They have the resources to analyse research, they often have access to company management, and they certainly get first look at placements, which are often only offered to institutional and large shareholders. So where does one (or in this case ASIC) draw the line?
Of course anything "deal" related is over the line, but at what point does "unfair" advantage come in. If I go out onto the footy park (not a good sight), or a fun run (what's fun about a fun run?) there are plenty of other competitors (usually 99% of them) who have an advantage over me courtesy of age, training, excess alcohol intake (mine not theirs) not to mention the use of supplements or even legally prescribed peptides.
I'm all in support of transparency and a level playing field in broker research, but it is incredibly hard to define, and harder to enforce.
