A topic Sui Chuan and I constantly have a dilemma on would be the confidentiality vs transparency. Should we disclose our holdings to the public? The need for confidentiality is that there is significant downside in telegraphing our methods and trade secrets that will ultimately hamper our ability to act discretely and quickly. Yet on the other hand, with transparency, it can improve market efficiency in the sense of helping others discover undervalued gems. A good article that discusses the merits of sharing such cheap, under-followed stocks is as discussed by blogger O-tone (
LINK). While myself, I shall share a paper that studied the ‘confidential holdings’ of institutional investors, especially hedge funds (
LINK).
Summary
- Hedge funds with characteristics associated with more active portfolio management, such as those managing large and concentrated portfolios, and adopting non-standard investment strategies (i.e., higher idiosyncratic risk), are more likely to request confidentiality.
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