Information Please: Hedge Funds Tap Into Experts

Hedge funds and private equity funds, one might say, have helped build up something of a financial match-making services, as The Wall Street Journal puts it. Alternative investment funds generally consider public information about companies worthless and are turning to firms such as Gerson Lehrman Group to get the lowdown on any information from former and current managers that they hope will give them a leg up on other investors looking to acquire stock. The information doesn’t come cheap – a client can pay $60,000 for a six-month deal that allows unlimited phone calls to experts in one of eight sectors GLG covers – and disclosing some info can come dangerously close to what may be regarded as nonpublic, even as GLG tells its consultants that they must abide by their firm’s policies to disclose it. Besides, says GLG founder Mark Gerson told The WSJ, most of his stable of consultants are so junior in their companies that they likely have no access to nonpublic information. The desire for information coupled with new regulations resulting in less useful news coming from the companies themselves have resulted in soaring profits for firms such as Gerson Lehrman. As for the hedge funds and p.e. funds that order the service, the information fed them is not necessarily a tasty scoop. Rather, says Jonathan Glick, research director at GLG, the clients have to piece together all the tidbits with other information gleaned elsewhere to conjure up something potentially useful. On the other hand, while investors seeking this information are on solid legal ground, things can get shaky, according to Harvey Goldschmid, a former commissioner at the Securities and Exchange Commission in a WSJ interview, when these well-paid employee/consultants (around $100 an hour) “go too close to a line in order to curry favor” with clients. For its part, Gerson Lehrman reportedly won’t hire employee/consultants without the company’s permission to serve in that capacity, and will stay away from a company altogether if the company requests it.