Flores: “Restricting the use of non-competes in the alternative asset management industry will harm the returns generated for investors, including pensions, foundations, and endowments”
London UK – MFA recommended that Treasury’s Competition Taskforce study how non-competes are used in specific industries before reaching any policy prescription in a comment letter submitted last week. The letter emphasises how non-compete agreements benefit investors and employees working in the alternative asset management industry. The recommendation is in response to the Australian Government’s request for information and views on non-compete clauses.
MFA members use non-compete agreements to protect proprietary strategies and processes that are developed through expensive and time-consuming research and development. Non-compete clauses are typically limited to employees whose departure could expose this confidential information and cause competitive harm to the firm. Alternative asset managers leverage these proprietary investment positions and trading strategies to deliver returns for their investors, including Australian pension plans, university endowments, and charitable foundations.
“MFA members use non-compete agreements to the benefit of fund investors and employees by protecting their intellectual property and proprietary investment strategies,” said Jillien Flores, MFA Executive Vice President and Managing Director, Head of Global Government Affairs. “Non-compete agreements allow firms to encourage collaboration, innovation, and employee advancement. Restricting the use of non-competes in the alternative asset management industry will harm the returns generated for investors, including pensions, foundations, and endowments.”
MFA’s letter emphasises that banning non-compete agreements in the alternative asset management industry would harm employees by forcing firms to severely limit who can access proprietary information. This will harm innovation, competition, and employees’ career opportunities:
“Without the protection of non-compete clauses, firms would be forced to severely limit the number of employees with access to their proprietary information, and the employees without access would be relegated to working on discrete projects without understanding the broader implications of their work. As a result, employees would likely lose out on career-advancing learning opportunities…[T]he use of non-compete clauses allow MFA members to utilise the unique perspectives of each covered employee, which is needed to develop and implement investment strategies for pension plans, university endowments, charitable foundations, and other institutional investors. These investors depend on the innovation that allows MFA members to diversify their investments, manage risk, and generate attractive returns over time.”
MFA’s letter highlights that other types of contracts, including confidentiality, non-disclosure, and non-solicitation agreements, do not afford firms the same level of protection as non-compete agreements:
“In practice, confidentiality, non-disclosure, and non-solicitation agreements do not afford MFA members the same level of protection as non-compete clauses. Putting aside the difficulties with detecting misuse of proprietary information, even if detected, it is often too late to do anything meaningful about it. After-the-fact litigation is often an inadequate alternative because the harm has already occurred once the information has been divulged. Moreover, complicated assessments of ownership of investment algorithms can be costly, lengthy, and potentially result in disclosure of proprietary information as part of the litigation process.”
Read the full comment letter here.
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