Non-compete clauses critical to investment management

Non-compete agreements are critical to the Australian investment management industry, according to the Alternative Investment Management Association (AIMA).

AIMA has told a Treasury inquiry that intellectual property (IP) needs to be protected in the investment management industry because to do otherwise will undermine active investing and trading strategies.

AIMA has strongly urged the retention of non-compete agreements in the face of a Treasury discussion paper which questions whether benefits of such clauses outweigh the costs to the economy in terms of worker mobility and wages growth.

“Non-compete agreements are an incredibly important part of the investment management industry. They play a critical part in protecting a firm’s confidential IP, which can include trading strategies and the proprietary research that underlies such strategies,” the AIMA submission said.

“It is therefore absolutely essential that this kind of IP (and, of course, other forms of IP) be kept confidential since it would have little value if it were widely known and therefore priced into the markets.”

“Such a result would disincentivize the development of active investing and trading strategies to the detriment of the firm, its personnel and its investors, with follow-on effects of impairing liquidity, price discovery and competition,” it said.

The AIMA submission said a majority of firms in the financial services and asset management industries use non-compete agreements in employment contracts.

“Absent non-compete agreements, an employer would be less likely to share their IP with a new employee, which would slow the employee’s development and stifle innovation, especially since an employee’s talent and expertise are often developed and honed by the employer and expanded upon through time and resources to teach that expertise,” it said.

“Non-compete agreements are widely used in these industries because of the level of IP involved, whether it be investment strategies, methodologies or algorithms, clientele, legal and tax strategies, and/or marketing activity, all of which are the type of information most firms would consider carry high commercial sensitivity.”