When someone files a public-records request for the names of private equity, hedge fund, and real estate funds the NC State Treasurer has invested public money in, the management fees paid, and information about the underlying portfolio companies, which of those does the Treasurer have to disclose?

Plain-English summary

The State Treasurer asked whether records about investments in private equity, hedge, and real estate funds were public and whether the trade-secret exemption applied. The records fell into three categories: fund names, investment amounts and annual returns; management fees; and information about companies in the funds' portfolios.

All three categories are public records unless an exemption applies. The Treasurer received and kept them in connection with investing state funds, so the AG applied N.C.G.S. § 132-1's public-record definition.

Fund and fee data. The Treasurer had generally released fund names, amounts, annual returns, and management-fee information. The AG concurred with the Treasurer's conclusion that these categories were not trade secrets and were not exempt under the provision it examined. The opinion gives no separate six-factor explanation for those categories.

Portfolio-company information. Based on the Treasurer's description of limited access, nondisclosure agreements, guarded databases, specialized research, and proprietary analysis, the AG concluded that the described information met the trade-secret definition in N.C.G.S. § 66-152(3). That finding relied on the information the Treasurer supplied; it did not establish that every record about a portfolio company is secret.

Three further conditions matter. For the exemption in N.C.G.S. § 132-1.2, each record must also be the property of the portfolio company, be designated confidential or a trade secret when first disclosed to the Treasurer, and be furnished only in connection with the portfolio company's performance of its investment-services contract. The opinion states these as additional requirements, not facts it independently verified for each record.

Currency note

This opinion was issued in 2006. Check the current public-records and trade-secret statutes, and the facts of the requested records, before applying it today.

Common questions

Q: Are a fund's name, investment amount, annual return, and management fee confidential under this opinion?

A: The AG concurred with the Treasurer that the basic fund and management-fee information described in the request were not trade secrets and not exempt from disclosure under the trade-secret provision examined.

Q: Did the AG decide that every portfolio-company record is exempt?

A: No. It found that the information as described by the Treasurer met the trade-secret definition. Each record also must meet the three additional requirements in § 132-1.2.

Q: What are those additional requirements?

A: The opinion says each record must be property of the portfolio company, have been designated confidential or a trade secret upon initial disclosure, and have been furnished in connection with performance of its investment-services contract.

Q: What factors help determine whether information is a trade secret?

A: The opinion lists six considerations used by North Carolina courts: outside knowledge, internal knowledge, secrecy measures, value to the business and competitors, effort or money spent developing it, and ease of independent acquisition or duplication.

Background and statutory framework

N.C.G.S. § 132-1 defines public records broadly. The AG concluded that the investment information held by the Treasurer fell within that definition. N.C.G.S. § 132-1.2 supplies an exemption for certain records containing trade secrets as defined in § 66-152(3), subject to the three additional conditions the opinion lists.

For the trade-secret definition, the opinion cites State ex rel. Utilities Comm'n v. MCI, Wilmington Star News v. New Hanover Regional Medical Center, and Combs & Assocs. v. Kennedy. It applies the resulting considerations to the portfolio-company information the Treasurer described and concurs with the Treasurer's contrary conclusion for basic fund and fee data.

Citations

• N.C.G.S. § 132-1 (public-record definition)
• N.C.G.S. § 132-1.2 (trade-secret exemption and further conditions)
• N.C.G.S. § 66-152(2), (3) (person and trade-secret definitions)
• Chapter 147, Article 6 of the North Carolina General Statutes (Treasurer investment authority)
• State ex rel. Utilities Comm'n v. MCI, 132 N.C. App. 625 (1999)
• Wilmington Star News v. New Hanover Regional Medical Center, 125 N.C. App. 174 (1997)
• Combs & Assocs. v. Kennedy, 147 N.C. App. 362 (2001)

Source

• Landing page: https://ncdoj.gov/opinions/applicability-of-public-records-act-to-certain-investment-documents/

Original opinion text

June 6, 2006

The Honorable Richard H. Moore
State Treasurer
Department of State Treasurer
325 North Salisbury Street
Raleigh, NC 27603-1385

Re: Advisory Opinion -- Applicability of Public Records Act to Certain Investment Documents

Dear Mr. Moore:

You have requested the opinion of this Office concerning the application of the Public Records Act (N.C.G.S. § 132-1 et seq.) to requests your office receives for certain information relating to the State's investments in private equity, hedge funds and real estate funds. You advise that the most common requests are for disclosure of: (1) the names of the funds in which the Treasurer has invested; (2) the amounts of such investments, and (3) the annual financial return provided by such funds (collectively referenced as the "Basic Fund Information"). Your office also receives requests for records reflecting the fees paid to fund managers ("Management Fee Information") and, for records containing information about the portfolio companies in which the various funds have made investments ("Portfolio Company Information"). Your specific question is whether the Basic Fund Information, the Management Fee Information and, the Portfolio Company Information, respectively, are public records and if so, whether they are confidential under an exception in the Public Records Act. You advise that you have generally released the Basic Fund Information and Management Fee Information upon request, but question the status of the Portfolio Company Information.

N.C.G.S. § 132-1 defines "public records" as "all documents, papers, letters, maps, books, photographs, films, sound recordings, magnetic or other tapes, electronic data-processing records, artifacts or other documentary material, regardless of physical form or characteristics, made or received pursuant to law, or ordinance in connection with the transaction of public business by any agency of North Carolina government or its subdivisions." Your letter states that the Department of State Treasurer receives and maintains the records in question in connection with its investments of state funds. The Treasurer is authorized to make such investments by Chapter 147, Article 6 of the North Carolina General Statutes. The Basic Fund Information, the Management Fee Information and the Portfolio Company Information are therefore public records required to be disclosed absent an express exemption in the General Statutes.

N.C.G.S. § 132-1.2 provides an exemption for certain categories of public records which the legislature has determined should remain confidential. Of specific relevance to the financial information you describe is an exemption for certain records containing a "trade secret" as defined in N.C.G.S. § 66-152(3). This provision defines "trade secret" as business or technical information, including but not limited to a formula, pattern, program, device, compilation of information, method, technique, or process that:

a. Derives independent, actual or potential commercial value from not being generally known or readily ascertainable through independent development or reverse engineering by persons who can obtain economic value from its disclosure or use; and

b. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

We have reviewed the case law respecting the exemption for confidential trade secrets. These cases reflect that our courts, in considering whether a public record contains confidential trade secrets which cannot be disclosed, have generally first reviewed the threshold question of whether the information received by the public agency meets the definition in N.C.G.S. § 66-152(3). In interpreting this statutory definition, courts have fashioned six factors which are to be considered when determining whether information is a trade secret:

(1) The extent to which the information is known outside the business;
(2) The extent to which it is known to employees and others involved in the business;
(3) The extent of measures taken to guard the secrecy of the information;
(4) The value of the information to the business and its competitors;
(5) The amount of effort or money expended in developing the information; and
(6) The ease or difficulty with which the information could properly be acquired or duplicated by others.

See State ex rel. Utilities Comm'n v. MCI, 132 N.C. App. 625, 634, 514 S.E.2d 276, 282 (1999); Wilmington Star News v. New Hanover Regional Medical Center, 125 N.C. App. 174, 480 S.E.2d 53, 56, appeal dismissed, 346 N.C. 557, 488 S.E.2d 826 (1997); Combs & Assocs. v. Kennedy, 147 N.C. App. 362, 369-70, 555 S.E.2d 634, 640 (2001).

You have provided information potentially relevant to each of these six considerations for the Portfolio Company Information. Specifically, you have advised us that the Portfolio Company Information is known outside the portfolio manager or partnership only to investors who have signed a non-disclosure agreement, prior to receiving any information. Access to the information within the portfolio manager or partnership is limited to (a) the researchers, analysts, and senior management of the general partner who put the information together for the limited partners and (b) the limited partners and the persons in their financial operations who have signed the non-disclosure agreement. The general partners guard the secrecy and confidentiality of the information in their proprietary databases during all phases of their work, including research, analysis, marketing, and dissemination. A non-disclosure agreement must be signed by participants in the investment, and breach of confidentiality by the investors is grounds for terminating the investment contract between the investor and the portfolio manager. Valuable information is collected, requiring specialized expertise and experience to research companies in which the portfolio invests, the market for those companies, and their competitors. Additional value is added with analysis, assessment, and conclusions, which serve as the basis for the Treasurer's decision to invest in a portfolio. The portfolio manager has its own proprietary means of selecting companies in which to invest and for packaging portfolios for the limited partners. Research processes, methodologies and qualitative analysis of the data are unique and specialized in each portfolio manager's organization.

Based upon the information provided, it is our opinion that the Portfolio Company Information described meets the tests in Combs and in Wilmington Star News of "trade secret" as defined by N.C.G.S. § 66-152(3). We concur in your conclusion that the Basic Fund Information and Management Fee Information are not trade secrets and are not exempt from disclosure under the Public Records Act.

It should also be noted that the exemption for trade secrets extends only to records that also meet certain additional statutory conditions prescribed by N.C.G.S. § 132-1.2:

Each record must be the property of the portfolio company, a private "person" as defined in N.C.G.S. § 66-152(2);

Each record must be designated or indicated as "confidential" or as a "trade secret" at the time of its initial disclosure to the State Treasurer; and

Each record must be disclosed or furnished to the State Treasurer only in connection with the portfolio company's performance of its contract for investment services.

We hope that this opinion is responsive to your request. Should you have further questions regarding this issue, please do not hesitate to contact us.

Sincerely,

Ann Reed
Senior Deputy Attorney General

Douglas A. Johnston
Special Deputy Attorney General