First, it was TCW admitting asset managers had used investor funds to purchase trillions of dollars of opaque bonds they cannot value (see here).  Now, it is hedge fund TCI admitting asset managers have the ability to and should force disclosure, but they actively chose not to use this ability.

Why?

Who would give their money to an asset manager who admits to blindly betting their clients’ funds because they don’t have access to the information they need to make an informed decision.

Christopher Hohn, the head of TCI hedge fund, confirms this point when discussing pollution disclosure.

“Asset owners should fire asset managers that do not require such disclosure,” Sir Christopher said.

Why?

“Investing in a company that doesn’t disclose its pollution is like investing in a company that doesn’t disclose its balance sheet.”

This isn’t investing.  This is just blindly betting.

He also accused BlackRock, the world’s largest asset manager, of “greenwash” because it does not require emissions disclosures.

Mr. Hohn highlights the hypocrisy of asset managers when it comes to disclosure.  They engage in what I call the asset manager disclosure two-step.

Step one:  asset managers hold themselves out as experts in the valuation of securities.  They market themselves to asset owners highlighting their investment track record.

Step two:  asset managers disclose to asset owners a series of risks like past performance isn’t a guarantee of future performance.  Left out of these risks is whether or not the asset manager is blindly betting on opaque securities.  Rather, asset managers assume when asset owners give them money to manage the asset owners understand all the risks of the securities the asset managers invest in including whether or not the securities are transparent or opaque.

In effect, the asset manager disclosure two-step allows asset managers to say the asset owners wanted us to blindly bet their money.

Mr. Hohn then goes on to make a critically important observation.

If governments won’t force disclosure, then investors can force it themselves.

Please reread his comment.

Regulators are not up to the task of requiring disclosure.  However, when investors act together, they can force disclosure of the information they need to know what they own.

Regular readers know investors need a tool to continually force the necessary disclosure.  This tool is the Transparency Label Initiative.

The Initiative only awards a label when a company discloses ALL the information investors need to know what they own.  This includes disclosure of carbon emissions.

The failure to disclose means not qualifying for a label.  The lack of a label acts as a warning to investors to stay away and if they insist on blindly betting to require a very high prospective return.  Management tends to be responsive when they face a very high cost of capital and limited liquidity for their securities.