Why Do Hedge Funds Avoid Disclosure? Evidence from Confidential 13F Filings

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Why Do Hedge Funds Avoid Disclosure? Evidence from Confidential 13F Filings
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A basic challenge facing hedge fund industry participants and regulators is determining the extent to which the composition and performance of investment portfolios should be publicly disclosed. Increased portfolio disclosure, and the associated increased transparency, is considered beneficial to the extent that it allows investors to make more informed investment allocation decisions and reduces potential agency costs that can arise when managerial actions are more opaque.

Increased transparency, however, comes at a cost if it reveals proprietary information that allows competitors to free-ride on a fund manager’s efforts to identify profitable investments and trading strategies.1 Increased transparency is also costly when it allows front-runners to trade against a fund that is in the process of accumulating or disposing of a position.

Bonhoeffer Fund July 2022 Performance Update