Because hedge fund trading strategies depend on confidentiality, required disclosures that let other market participants trade along or anticipate a fund's transactions can negatively affect the fund's absolute returns.
Source quote, verbatim
If other market participants trade along or are enabled to anticipate certain transactions by a hedge fund because of required disclosures, the disclosing hedge fund may not be able to fulfill its mandate to maximize shareholders' value
Kaal, Hedge Fund Regulation Via Basel III (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1806252
Holds when
strategies rely on interpreting market environments not yet priced in by others
Classification
mechanismsupport: argueddisclosureprivate-funds
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