Aug. 11, 2020
August 11, 2020 Ms. Vanessa Countryman Secretary U.S. Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: Reporting Threshold for Institutional Investment Managers, Release No. 34-89290; File No. S7-08-20 Dear Ms. Countryman: On behalf of Neenah, Inc. (NYSE: NP), a small cap manufacturing company headquartered in Atlanta, Georgia, I am writing to express our opposition to the Commission’s proposed amendments to the Form 13F reporting rules for institutional investment managers. We believe that the SEC’s proposal would result in a significant loss of market transparency to our company and other public traded companies in the United States. The proposed rule would impair our ability to understand our shareholder base and engage with them, impede our ability to attract new long-term investors, and deprive us of information about potential activist actions in a timely manner. The 13F filings are the only accurate source of ownership information available to our company as well as other U.S. issuers. While 13F data is not as timely as it could be, it is the only data that we have that shows which “street name” investors are buying or selling our shares. This information cannot be replaced by hiring stock surveillance firms, which themselves often rely on quarterly 13F data as a starting point or anchor point for their research efforts. We do not believe that the Commission has adequately considered the potential impact of this 13F proposal to companies like ours and our obligation to regularly confer with our investors. As a company with sales and market capitalization below one billion dollars, we are particularly concerned about how the reduction of 13F transparency would impair our abilities. We estimate that the proposed increase in the 13F threshold to $3.5 billion would allow at least a quarter of our current 13F filers to avoid disclosure, many of which are active and thoughtful investors, with whom we highly value interactions. While some of our largest investors would continue to disclose shares held, many of those are passive, indexed holders with positions that do not change appreciably each quarter. For our company and many others, it is the 13F data from the active investment managers and hedge funds under the proposed $3.5 billion threshold that is more valuable.[1] Reduced Engagement Due to Lack of Transparency Our company uses 13F data to allocate the limited time of our senior executives among the many requests that we receive from investors for one-on-one calls or meetings. We cannot possibly say yes to every investor request to speak with our senior management, so we try to give priority to not only our largest investors and fund managers, but also those shareholders with smaller positions who are interested in increasing their holdings in our company. With the proposed increase in the 13F threshold, we would not have visibility into this important group. Negative Impact on Capital Formation The loss of 13F data also would impede our company’s ability to attract new long-term institutional investors. Like many other issuers, we use 13F filings to identify potential shareholders (such as those who have invested in similar companies) and to measure the effectiveness of our outreach efforts to prospective investors. Both of these practices are essential for our company to effectively access the capital markets and to grow our business. Under the proposed threshold, the loss of transparency around who is holding, as well as buying or selling our shares each quarter would hinder the ability of our company to continue to compete for and raise growth capital. As required by the agency’s mission, the SEC should fully consider the impact on capital formation before proceeding with this rulemaking. Increased Risk of Activism The Commission’s proposal to significantly reduce 13F disclosures also is at odds with recent requests by the SEC that we and other public companies “provide as much information as is practicable” to investors amid the market uncertainty caused by the global COVID-19 pandemic.[2] Just as there is a need for greater transparency on our part to our investors, our need for ownership data is even greater during these uncertain times, when market volatility is high. The loss of 13F data under the proposed rule potentially exposes our company to a greater risk of ambush activism by short-term-oriented fund managers, who may take measures that may not be part of our long-term strategy or the investment strategy of our long-term investors. Many corporate advisers are warning companies to prepare for another surge in activism in 2021-22 after the pandemic subsides (as there was after the financial crisis of 2008-09), so the timing of the SEC’s proposed reduction of 13F transparency would be especially unfortunate for companies and long-term investors.[3] While we agree that SEC should modernize its ownership disclosure rules, we believe that the negative impacts of this 13F proposal on our company’s ability to engage effectively with our shareholders, attract new long-term investors, and detect potential activists would far outweigh the modest cost savings for investment managers. The proposed 35-fold increase in the 13F threshold is not consistent with the incremental approach the SEC has taken when adjusting economic thresholds in other rules, such as the Commission’s inflation-based increase in the gross revenue cap for emerging growth companies,[4] the adjustments to the transition thresholds for companies that exit accelerated filer status and large accelerated filer status,[5] and the proposed updates to SEC’s rules on shareholder resolutions.[6] For the foregoing reasons, we request that the Commission withdraw its proposed 13F amendments and instead pursue the reforms detailed in the rulemaking petitions submitted by National Investor Relations Institute, the NYSE Group, the Society for Corporate Governance, and Nasdaq.[7] Rather than reduce 13F transparency, we urge the SEC to promote more timely and complete disclosure by supporting monthly reporting, requiring the public disclosure of short positions, and cutting the 45-day reporting period. Sincerely, Paul DeSantis Chief Financial Officer [1] According to Edelman’s financial communications practice group, 60 percent of activist asset managers would fall under the $3.5 billion threshold. See Jeremy Cohen and Jeff Zilka, Edelman, “SEC Proposed Rule Change Is A Step Backwards for Shareholder Democracy,” July 29, 2020, available at: https://finance.yahoo.com/news/sec-proposed-rule-change-step-193708183.html. [2] As Chairman Jay Clayton and Corporation Finance Director William Hinman observed, “The SEC’s three-part mission -- maintain market integrity, facilitate capital formation, and protect investors -- takes on particular importance in times of economic uncertainty. Disclosure — providing the public with the information necessary to make informed investment decisions — is fundamental to furthering each aspect of our mission. . .. We urge companies to provide as much information as is practicable regarding their current financial and operating status, as well as their future operational and financial planning.” Chairman Jay Clayton and William Hinman, Director, Division of Corporation Finance, "The Importance of Disclosure – For Investors, Markets and Our Fight Against COVID-19," April 8, 2020. [3] See, e.g., Q4 Blog, "Activism in the Post-Pandemic Market: What You Need to Know," May 12, 2020, available at: https://q4blog.com/2020/05/12/activism-in-the-post-pandemic-market-what-you-need-to-know/; Frank Aquila and Melissa Sawyer, Sullivan & Cromwell, Corporate Secretary, “How boards can prepare for post-pandemic activism,” April 6, 2020; available at: https://www.corporatesecretary.com/articles/boardroom/32040/how-boards-can-prepare-post-pandemic-activism. [4] Inflation Adjustments and Other Technical Amendments Under Titles I and II of the JOBS Act, Release Nos. 33-10332; 34-80355; File No. S7-09-16 (March 31, 2017). [5] Accelerated Filer and Large Accelerated Filer Definitions, Release No. 34-88365; File No. S7-06-19 (March 12, 2020) (the SEC increased the threshold for exiting accelerated filer status by 20 percent from $50 million to $60 million, while the threshold for exiting large accelerated filer status increased by 12 percent from $500 million to $560 million). [6] Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8, File No: S7-23-19 (Nov. 5, 2019) (The Commission proposed to increase the minimum holding requirement for shareholder resolutions from $2,000 to $25,000, but would mitigate the impact of that change on small investors by allowing them to use the $2,000 threshold if they continuously hold a company’s shares for at least three years.) [7] See NYSE Group, NIRI, and Society for Corporate Governance, Request for Rulemaking Concerning Amendment of Beneficial Ownership Reporting Rules Under Section 13(f) of the Securities Exchange Act of 1934 in Order to Shorten the Reporting Deadline under Paragraph (a)(1) of Rule 13f-1, Petition No. 4-659, February 4, 2013, available at: https://www.sec.gov/rules/petitions/2013/petn4-659.pdf; NYSE Group and NIRI, Petition for Rulemaking Pursuant to Sections 10 and 13(f) of the Securities Exchange Act of 1934, Petition No. 4-689, October 7, 2015, available at: https://www.sec.gov/rules/petitions/2015/petn4-689.pdf.; and Nasdaq, Petition for Rulemaking to Require Disclosure of Short Positions in Parity with Required Disclosure of Long Positions, Petition No. 4-691, December 7, 2015, available at https://www.sec.gov/rules/petitions/2015/petn4-691.pdf.