Maintaining Confidentiality in Fund Documents: A Realistic Expectation?

Fund managers are typically keen to maintain confidentiality over their investment strategies and performance including the information they disclose to potential investors. Do instantaneous newsfeeds and social media platforms for information sharing mean this is a realistic prospect? 

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). Hedge fund managers and others keen to enforce confidentiality will be reassured by the result. 

An injunction to restrain publication was sought by BHAM after contents of documents provided to potential investors by BHAM were leaked to Reuters who wished to publish 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? 

In short, yes. One of the key factors leading to the court’s decision was that BHAM only disclosed the information to a limited number of potential investors (36) and did so in circumstances that were obviously 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. 

Fund managers wishing to maintain confidentiality over their investment strategies and performance should adopt a combination of measures to make it more likely that their information would benefit from court protection by attaining the necessary quality of confidence. These include the following measures which were taken by BHAM and considered by the court: 

• Prior notification: each investor was telephoned before receiving any documents and informed that the documents were confidential and highly sensitive. 
• Written confidentiality statements: the first page of the 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. 
• Password protection: each recipient had a unique password for the documents they received. 

Although not mentioned in this case, fund managers could also consider advance written non-disclosure agreements in suitable cases. 

If fund managers are warned or suspect that their confidential information is going to be published, they should contact the publisher or the publisher’s representatives as soon as possible in order to put them on notice that the information is confidential. 

This case demonstrates 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. 

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

However, the court rejected this argument on the basis that 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 could be to the detriment of the funds’ beneficiaries. 

Significantly, in this case there was no issue of publication being necessary to expose hypocrisy, incompetence, deceit or some other form of iniquity by BHAM. 

Whilst this was a helpful decision to BHAM, it did turn on its particular facts. This judgment is not a panacea and fund managers need to proactively protect their confidential information. Taking individually tailored steps to preserve the confidentiality of key information, as recommended above, is a good starting point. 

A version of this article was originally published in HFMWeek