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 invests billions of dollars of state pension and other funds in alternative-investment vehicles: private equity funds, hedge funds, and real estate funds. Public-records requesters regularly ask for three categories of information about these investments:

• Basic Fund Information: the names of the funds, the amount the State invested in each, and the annual returns ("the headline numbers")
• Management Fee Information: how much the State pays the fund managers
• Portfolio Company Information: details about the specific operating companies that the funds put money into ("if our pension fund invests in Apollo Fund VII, what businesses does Apollo Fund VII actually own?")

Treasurer Richard Moore asked the AG whether all three were public records subject to disclosure, and whether any fell within the trade-secret exemption.

The AG's answers:

1. All three are public records under § 132-1. They were created or received by a state agency in connection with public business (the Treasurer's investment of state funds under Chapter 147, Article 6). The default rule is that public records must be disclosed.

2. Basic Fund Information and Management Fee Information must be disclosed. They don't fit the statutory trade-secret definition. The Treasurer was already releasing these.

3. Portfolio Company Information qualifies as a trade secret and is exempt. The AG applied the six-factor test from State ex rel. Utilities Comm'n v. MCI, Wilmington Star News v. New Hanover Regional Medical Center, and Combs & Assocs. v. Kennedy:

• Outside the business it's known only to investors who signed an NDA
• Inside the business it's restricted to researchers, analysts, senior management, and limited partners who signed NDAs
• It's actively guarded throughout research, analysis, marketing, and dissemination
• It's valuable to fund managers and to their competitors
• Fund managers spend substantial money developing it
• It cannot be easily acquired or duplicated by others without specialized expertise and access

4. The trade-secret exemption has additional conditions under § 132-1.2. Even after the six-factor test is satisfied, the record qualifies for the exemption only if:
   - It's owned by the portfolio company (a "person" under § 66-152(2))
   - It was designated as confidential or as a trade secret at the time it was initially given to the Treasurer
   - It was disclosed only in connection with the portfolio company's performance of its contract for investment services

Signed by Senior Deputy AG Ann Reed and Special Deputy AG Douglas Johnston.

Currency note

This opinion was issued in 2006. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The Public Records Act and the trade-secret definition in § 66-152(3) have been amended since 2006. The Department of State Treasurer has also adopted a transparency policy that may go beyond what this opinion requires. Anyone applying this opinion to a current request should pull the current statutory text, check the Treasurer's posted transparency policy, and look for later cases on the trade-secret exemption in the public-investment context.

Common questions

Q: What's the six-factor trade-secret test?
A: NC courts assess (1) the extent the information is known outside the business; (2) the extent it's known to employees and others involved in the business; (3) the measures taken to guard secrecy; (4) the value of the information to the business and its competitors; (5) the effort or money spent developing it; and (6) the ease or difficulty of independently acquiring or duplicating it.

Q: Why aren't fund names and amounts also trade secrets?
A: Because investors generally already disclose those facts (capital commitments to funds are commonly known in the market) and because the Treasurer's office uses them in routine reporting. The AG concluded those data points fail the trade-secret test on factors 1, 4, and 6.

Q: What about returns information for the funds?
A: The opinion treats fund-level annual returns as Basic Fund Information that must be released. (This is a narrower disclosure than portfolio-company-level returns, which would reveal the fund manager's specific bets.)

Q: What does "designated as confidential at initial disclosure" mean?
A: Section 132-1.2 only protects records that the portfolio company actually marked as confidential or as a trade secret when the company first gave them to the Treasurer. If the company hands over information without that designation, the protection is lost.

Q: How does the State enforce the NDAs in the public-records context?
A: The opinion doesn't get into enforcement mechanics. In practice, public agencies that hold contractually-confidential information typically rely on the trade-secret exemption to refuse a public-records request, and the fund manager who supplied the information would be the party bringing any breach claim if the agency disclosed.

Q: Can a requester sue to compel disclosure of portfolio company information?
A: Yes. The trade-secret exemption is a legal conclusion, not a final answer. A requester who disagrees with the AG's six-factor analysis can sue under § 132-9 for an order compelling disclosure, and the court will reapply the trade-secret factors to the specific records at issue.

Background and statutory framework

The North Carolina Public Records Act (Chapter 132) starts from a strong presumption of access: any document made or received by a public agency in connection with public business is a public record and must be disclosed unless a specific statutory exception applies. The trade-secret exemption is one of those specific exceptions, codified at § 132-1.2 and keyed to the definition of "trade secret" in § 66-152(3) (part of NC's Trade Secrets Protection Act).

In the alternative-investment context, the tension is between:
- Public interest in knowing how public-pension dollars are invested (which fund managers, what fees, what returns)
- Private fund managers' interest in protecting proprietary deal flow, research methodologies, and underwriting analysis from competitors

States have resolved this tension in different ways. Some have legislatively exempted alternative-investment data more broadly (CalPERS settlement after 2003 California PERS litigation; Colorado statute; Texas statute). NC took the middle path: high-level data is public, deep portfolio data is exempt as a trade secret.

The six-factor test the AG applied comes from NC appellate cases dealing with utility filings (MCI), hospital financial records (Wilmington Star News), and trade-association data (Combs). The factors come from the Restatement of Torts and have been adopted in most states.

The additional § 132-1.2 conditions (ownership, designation at initial disclosure, contractual link) come from the legislature's effort to prevent agencies from over-claiming the trade-secret exemption for routine government records. Without those gating conditions, any agency could mark a record "confidential" and trigger the exemption.

Citations

• N.C.G.S. § 132-1 (definition of public records)
• N.C.G.S. § 132-1.2 (trade secret exemption with three additional conditions)
• N.C.G.S. § 66-152(2) (definition of "person")
• N.C.G.S. § 66-152(3) (definition of "trade secret")
• N.C.G.S. Chapter 147, Article 6 (State Treasurer's investment authority)
• State ex rel. Utilities Comm'n v. MCI, 132 N.C. App. 625 (1999) (six-factor trade secret test)
• 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