News
A highly revealing piece of research from David Solomon of the University of Southern California and Eugene Soltes of Harvard Business School as referenced by IR Web Report has found that hedge funds make trades having met privately with company management which “supports the position that permitting private meetings between management and investors undermines regulators’ objective of wanting all investors to have equal access to information”.
Focusing on one NYSE traded company and investigating 935 private meetings over a 6-year period between 340 different institutional investors they reveal that "hedge funds, large block holders, geographically close investors, and investors with higher turnover meet more frequently with management (than other investors)...Overall, our results suggest that private meetings help some investors make more informed trading decisions".
These findings are "surprising in light of the passage of Regulation Fair Disclosure (i.e. Reg FD) in 2000" to address the perception that particular investors retained an unfair advantage. Reg FD specifies that all material information disclosed by managers should be publicly available and accessible to all investors. Perhaps the key finding is that funds with high turnovers, particularly hedge funds, tend to secure more meetings with senior management suggesting that "the regularity of these meetings for certain investors seems to indicate that these meetings offer more than just an opportunity to receive an introduction to management".
It is stated that regulations are not necessarily being breached when providing information to hedge funds or other funds; rather that “the distinction between ‘material’ and ‘non‐material’ information is more subtle than typically envisaged in regulations.”
View the full report.
Published: 30 November, 2011