Thought leadership from our experts

Investor information: How do you reconcile openness and confidentiality?

Investment managers have never been more interested in maintaining confidentiality over their investment strategies and performance than today. This includes the information they disclose to potential investors. Do instantaneous newsfeeds and social media platforms for information sharing mean this is an unrealistic prospect? At the same time, the requirements for clear and prompt investor disclosure have never been higher.

In this context, the English High Court recently granted an interim injunction preventing the disclosure and publication by Reuters of information from confidential documents relating to a fund manager, Brevan Howard Asset Management (BHAM). Investment managers and others keen to enforce confidentiality will be reassured by the court's conclusions.

The story began when BHAM decided to disclose additional specific information to potential investors but did not want that information to come into the public domain. They set out with care to achieve these potentially conflicting objectives, but when an unknown person passed on the contents of this information to a reporter at Reuters, Maiya Keidan, the scene was set for a test of public interest over confidentiality.

After BHAM concluded that its initial attempts to protect its information were not to succeed, it sought an injunction to restrain Reuters from publishing information deriving from the documents. Given that BHAM had already supplied the information to a number of potential investors, could it still claim that the information was confidential?

The court's decision was a clear "yes". One of the key factors was that BHAM had only provided the information to 36 potential investors and that they did so in circumstances that were designed to preserve the confidentiality of the information. It was also relevant that the information had the potential to be valuable to BHAM's competitors and damaging to its business if it was disseminated more widely.

The court's application of the time honoured principles of confidentiality created no great surprises. Nonetheless, there was specific comment on the steps BHAM took, which provides reassurance and a guide to fund managers and others in a similar position.

Those wishing to maintain confidentiality over their investment strategies and performance should adopt a combination of measures to make it more likely that their information will benefit from court protection by showing the necessary quality of confidence. The non-exhaustive measures taken by BHAM and considered by the court included the following.

Each investor was telephoned by BHAM before receiving any documents and informed that the documents were confidential and highly sensitive. In addition, the first page of each package of documents was headed 'Private and Confidential' and 'Not for Distribution' and included a disclaimer setting out that the document was to be treated as proprietary and confidential. Finally, each recipient had a unique password for the documents they received.

Although not mentioned in the BHAM case, fund managers could also consider advance written non-disclosure agreements either on a standalone basis or incorporated within fund prospectuses and application forms. This provides the best possible level of protection but may not always be practical, particularly for prospective investors.

Thereafter, if a fund manager is warned or suspects that its confidential information is at risk of publication, it should contact the publisher or its representatives as soon as possible with an explicit notification that the information is confidential.

The Reuters BHAM case also illustrates the factors the court will consider when looking at the public interest defence in a breach of confidence case in a financial services context. In considering Reuters' public interest defence, the court noted that BHAM was a very large fund manager and that funds and their effect on the economy are a legitimate matter of public interest and debate and an important feature of the global economy.

In addition Reuters argued that, as some of the investors in BHAM's funds were institutional investors such as pension plans, foundations and endowments, there was a public interest in the individual beneficiaries of these investments (such as pension plan holders and public employees) having disclosure so they could be in a position to influence and hold to account the institutions whose investment decisions affect their financial welfare.

In this case, the court rejected this argument. If funds felt that their confidential commercial information could be published without restraint, they would be less inclined to make full and candid disclosure to investors who would therefore be less well-informed in making their investments. This in turn would be to the detriment of the funds' beneficiaries.

By contrast, the court noted that there was no issue of publication being necessary to expose hypocrisy, incompetence, deceit or some other form of iniquity by BHAM. Perhaps a different decision would then have been reached. Accordingly, although this was a helpful decision to BHAM, like most cases it turned on its particular facts. The judgment is reassuring for those looking to protect confidentiality but is also a reminder that fund managers need actively to protect their confidential information. Taking individually tailored steps to preserve the confidentiality of key information, as recommended above, is a good starting point. Now would be a good time for fund managers to review their standard procedures where confidentiality is to be safeguarded.

One final word of caution; the High Court has granted Reuters leave to appeal the decision. While the current judgment looks sound, Reuters continues to contend that it believes that "news and information that is in the public interest outweighs the confidentiality concerns put forward in this matter". This story and its implications may rumble for some time yet.

Peter Astleford is a partner at Dechert LLP and is co-head of their global financial services group of some 200 lawyers.