On transparancy....

So you've noticed the two new buzz words...... impact and transparancy.

Interesting how people can get excited and think the world will change if things become transparant and if impact investors will grow on trees.

A lot of it is old wine in new bottles and quite a large part is very young wine that is sold successfully, but is it ready to drink....?

In 1984 I wrote a prospectus for an investment fund.
Called a lawyer to check it and an accountant to sign off.
Fifteen pages.
Page fifteen was the application form. Page fourteen a letter from the accountant.
Thirteen pages on how the fund worked, who was involved and that type of information.
Transparant ?
Maybe not completely and in all details.
Understandable for almost all readers?
Definitely.

At the end of 2007 I stopped working for the operating consultant of a midsized offshore hedgefund.
Our prospectus was 163 pages long and you had to read and sign ten pages 'subscription application form' to buy the shares.
This prospectus was written by a group of lawyers (most of them with a Harvard like degree...).

The idea of these prospectusses is that everything has to be in it.
It has to be transparant.
So in our own prospectus (for so-called expert- investors) we described risks like; 'lack of operating history', 'layering fees,charges and compensation', 'investment manager compensation', 'an investment in a protected cell is not a direct investment in underlying funds', 'risk associated with classes of shares designated in currencies other than U.S. Dollars', 'risks related to valuation', 'risks related to gating' and so on and so on.
Thirteen pages of risk description.

My favorite sentence somewhere on one of these pages was;
'regulatory controls and corporate governance of companies in developing countries confer little protection on minority shareholders.'
Also nice;
'anti-fraud and anti-insider trading legislation is often rudimentary.'

The fund was a fund of funds. So we invested in other onshore and offshore funds.
The results of the investments were reported monthly and were transparant as well.
But did everybody exactly understand how these results were calculated etcetera?
Some of us did. But most investors didn't.
But less and less people had oversight in a more and more transparant financial world.
We all know where we are now and a part of it has to do with this transparancy and checklist fetishism.

If everything is transparant you don't see a thing..... or you see it too late.