The value of public information is improving and the quality of private information is declining, but access to private information remains very valuable when a company's performance is waning, noted Payson Swaffield, v.p. of Eaton Vance and co-director of its bank loan funds. "As companies become more stressed they have very valuable information," he said. Swaffield noted that he used to receive monthly financials from companies, but now often receives only quarterlies.
The convergence in the quality of public and private information can be attributed to SEC Regulation FD, passed three years ago, said Elizabeth Tallmadge, managing director and chief investment officer of HVB Credit Advisors. Regulation FD was installed to combat selective disclosure of material non-public information to analysts and investors and has made companies more careful even within relationships where private access exists, she explained.
Still, confidentiality is a crucial element of the bank loan asset class, stated Justin Driscoll, managing director of Bear Stearns Asset Management. Access to private information is not as relevant when looking at a new issue, but rather when identifying which companies should be on a watch list, he explained. Private information becomes essential when monitoring a company in order to protect principle by looking at a company's credit. Furthermore, this information allows managers to identify a trend before it becomes catastrophic.
But some people take too much comfort in private information from a company, added Tallmadge. Often, people find additional security because they have direct access to information and consequentially may not dig as deeply into the numbers, she explained. Bond analysts, who may feel disadvantaged in comparison with bank analysts, may end up asking more questions and end up actually learning more as a result, she concluded.