Transparency… Is It Better for Money Managers?

  • Posted by
  • on September 1st, 2008

Not to be overly cynical or negative on the industry I love, I think transparency only matters if you care about YOUR reputation. Other than at the fringe, it won’t help you raise more money or get better returns.

RETURNS and Pedigree matter.

I received this question and comment from Stephen one of my readers:

Howard. Thanks for sharing. Do you think transparency = better for managers or fund managers is better because it allows investors to see into mindset of managers? What specifically does transparency bring to the relationship between manager and investor? I’m all for transparency, I’m just wondering if you can expand on the relationship dynamics that are effected by transparency=credibility – is this a mechanism for reshaping the field for who gets to manage money, do returns become a lower weighted metrics for the measuring relationship w/ manager (from investor perspective) because process transparency allows for deeper understanding on investor side, and thus return performance gets re-valued. Perhaps longer term relationships with $ managers from clients

In the money management world, transparency can mean many things. Every scam has been pulled and the best scams can appear very transparent on the surface. My business has always been adversely affected by the behavior of other money managers and financial executives, not my performance. Right now in Phoenix, every real estate lender is being lumped in with the few amateur creeps and thieves. I suffer when the industry suffers because the best time to invest in lending is right now, but investors are scared. Assets are flowing in the opposite direction of where they should be flowing.

If you went to Harvard and interned at Goldman, you are not reading this blog. That’s because you CHUCKLE at the blogosphere. It’s a waste of your time. Transparency is therefore, not as important for both your time or as an investment. What is important is the 2 percent fee equation and the various ways you can survive for at least 2 years on the gynormous fees you will generate off your faceless backers. OR – how much risk can I take to hopefully light up my returns and gather assets before I implode.

The industry has gotten way ahead of itself and short-term, hedge funds asset flow will suffer. Long-term, the industry is in it’s 3rd or 4th inning, so I will hunker down and talk to my clients and report more than normal and just work harder.

When I talk transparency, I mean on a personal level.

I think it is hard to lie if you are being transparent on the social web. So anyone interested in managing MY money in the future, should be building his/her brand and participating.

One day, your returns will suffer. You are not the next Warren Buffet or Quantum Fund. You are like me and the rest of the dart throwers, like 99 plus percent of the people in the business, so over a career, your reputation will matter.

Greed and Fear drive the markets and therefore the hedge fund industry. This supercycle in hedge fund growth is over. The next one will be bigger though.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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