Public pension funds are among the most coveted types of investors in hedge funds. This is so for various reasons. Public pension funds typically make large investments for the long term. They often spend considerable time on investment and operational due diligence
and only commit capital after scrupulous analysis. Accordingly, an investment from a credible public pension fund is often more than just a source of capital – it also acts as an imprimatur, a vote of confidence and a letter of recommendation when approaching other investors. But for hedge fund managers, investments from public pension funds can also have downsides. One of the more notable downsides is the one-two punch of more information demanded and less control over information provided. That is, public pension funds often demand from their hedge fund managers – and often receive as a result of their size and concomitant clout – significant transparency into things like portfolio composition, industry concentration, regulatory developments and similar items. At the same time, public pension funds are typically subject to state “sunshine” laws – laws that generally require government bodies to disclose information about their business and investment activities unless an exemption is available. For hedge fund managers that want public pension plan investors but do not want to disclose their confidential data, the existence of state sunshine laws would appear to present an unpleasant binary choice: accept pension money (if you can get it) and disclose, or reject pension money and maintain confidentiality. But the choice need not be so stark. There are ways to accept public pension plan investors while protecting the confidentiality of competitively sensitive information to a significant degree. This article outlines ten strategies for doing so and, to contextualize those strategies, discusses: what sunshine laws are; the information typically required to be disclosed pursuant to sunshine laws; some common exemptions from disclosure included in sunshine laws; and the process for challenging a request for disclosure pursuant to sunshine laws.