Transparency Best Practices for Hedge
Fund and Investment Companies
•William Woolverton brought a broad understanding of legal
and executive considerations to the discussion, drawing on his
years of service to Gottex, Putnam Investments, and other
major corporations. Following is what he had to say.
•Many managers ask whether they need to disclose a
company’s substantive disciplinary episode (for example, a
United States Securities and Exchange Commission inquiry)
to an investor in the due diligence questionnaire.
In an October 13, 2011, interview, financial executive and attorney
William Woolverton discussed a variety of operational due diligence
issues with the Hedge Fund Law Report.
A portion of the publication’s conversation with Woolverton,
formerly of Putnam Investments and the current Senior Managing
Director and General Counsel in the Boston office of leading
international fund of funds investment company Gottex Funds
Management, covered several matters involving transparency.
•Because of the serious nature of such an incident, the company should
disclose it, regardless of whether the investor asks and even if the SEC
did not open a formal investigation.
•More and more investors are expecting such transparency about any
regulatory actions, and it is best to be forthcoming.
•Another frequent question: What can a company expect its potential
investors to look for during an on-site visit?
•Although financial data can be easily transmitted electronically,
experienced investors expect to visit a company and sit down for a
frank face-to-face talk with its management.
•Investors tend to focus on checking management credibility, viewing
real-time operations, and hoping to see a flexible and responsive team
that can handle any stress tests that the investors opt to conduct.
•Managers also want to know how to answer due diligence
questionnaires that focus on confidential or proprietary information.
•Typically, the request for proposal (RFP) allows an applicant to state that
some items fall under the heading of “trade secrets” and provides
assurance that the investor will not disclose such information.
•Being upfront during the negotiating process of an RFP and coming to an
agreement that certain disclosed information must be kept confidential is
the best course of action.