Posting Hedge Fund Letters? Better Think Twice After Elliott Goes Postal Over Absolute Return+Alpha Letter Leak
One of the most irreverent yet competitive practices in the financial blogosphere has long been the tradition of who can post the most recent hedge fund letters first. Yet that may soon be coming to an end, after Elliott Management sought an emergency court order to uncover who leaked its most recent investor letter to Absolute Return + Alpha. Elliott, which has historically been very skittish about having the public see either its performance (and in this case there is nothing to be ashamed of with a 5.3% YTD return by Elliott, and 0.4% in Q2), or its outlook on the economy and potential investing oportunities (in this case saying that "the current economic situation has not produced
the type of new, complicated, restructuring situations the firm likes to
invest in."). What is surprising is that in its court filings Elliott said that "publication of its results would hurt its competitive edge." This is somewhat disingenuous, as a hedge fund's performance is known within days of publication either via official statistics reports such as the the popular HSBC weekly hedge fund performance tracker, or word of mouth. Additionally, investor letters always make it to open, whether via the blogosphere, or IRC chat rooms (yes, despite the incursion of twitter and various momentum trader spin offs, the real information "exchange" still occurs deep in the bowels of mIRC). Yet should the Supreme Court of the State of New York in Manhattan rule on behalf of Elliott, the precedent would be very troubling, as case law would now exist for the forced disclosure of any such letter leaks, and blogs that traffic in fund letters (and ZH has been known to publish some in the past), may have little legal recourse when a subpoena was served to them (luckily, the ZH legal venue is and will always be of a European nature, as such any decision by the Supreme Court will be non-binding and unenforceable).
More from Reuters:
In court papers, filed in the Supreme Court of the State of New York in Manhattan, Elliott said its June 30 letter to investors had been leaked to the magazine, and that it wanted the court to give it emergency authority to investigate the magazine and find out who had violated Elliott's confidentiality agreement and leaked the letter.
Elliott said it was contacted by the magazine and learned it could publish the full letter as soon as Friday. Michelle Celarier, editor of Absolute Return + Alpha, declined to comment.
Elliott, which is run by Paul Singer and specializes in distressed investing, said its investor letter contains its second-quarter positions, and that its publication would cause "significant harm to Elliott and negatively affect its competitive advantage" in the market.
"If other participants learn the particulars of Elliott's positions and results with respect to those positions, it would impact negotiations Elliott has with those parties ... affecting Elliott's future results," the hedge fund's director of communications, Scott Tagliarino, said in the court papers.
In the court papers, Elliott said each of its letters is watermarked with the identity of the person who is accessing it so the time and date when each person accessed the letter can be tracked.
Elliott may be surprised to find that recent versions of Adobe Professional have a de-watermarking feature which allows the removal of such "protection" features (and the outright editing of any and all pdfs) within a minute.
Elliott said it wanted the information from
Absolute Return + Alpha within two days so that it could pursue damages
and an injunction against the leaker.
One wonders just what damages a fund can and will pursue against one of its own LPs, which ultimately would (or at least should) be the first source
of any hedge fund leak.
Hedge funds typically send letters to their
investors every quarter to update them on their results, and while some
expect them to leak out, others have gone to great lengths to try to
keep them secret. But it is rare for a fund to go to court over the
leaking of an investor letter.
And that is precisely the case, which is odd why Elliott would take this action at this point, and more relevantly, which other funds will be willing to go to war with the media industry, over comparable such "leaks." We are certain this will not be the first and last such escalation by a hedge fund, at a time when many HFs are expected to shutter following in the footsteps of Duquesne Capital, dreaming of a time when the market actually made sense, and "levered beta" wasn't the only practicable strategy.