Trade Secrets and Hedge Funds

There was a recent article that got us thinking about hedge fund valuation. Hedge fund principals have long argued that timing and investments that make up their investment portfolios are their trade secrets.

Interestingly, hedge funds are exempt from most SEC disclosure rules for investment companies until such funds reach $100 million or more in publicly traded equity, when disclosure requirements kick in.  In other words, whatever value there is in the trade secrets protected by a hedge fund with publicly traded equity under $100 million is likely given up once they hit the magic number!  Do we have a cosmic dilemma here: as the fund grows, the value of the company diminishes?

Is this one of the reasons some hedge funds deliberately keep publicly traded equity holdings below the $100 million mark, or divide themselves almost amoeba-like so that each “cell” can maintain the trade secrets that presumably make them special?