July 14, 2020
13F filings are critical to investors monitoring long equity positions of its managers. Indeed, disclosures of short positions, as they are required in Europe, would be even more helpful, but this proposed regulatory change is going the wrong way. Additional monitoring costs that investors will need to bear if 13F filings are no longer required for all but the few largest managers will likely far outweigh any reduced compliance costs related to managers.
Alternatively, if the SEC wishes to press forward with a threshold increase, I suggest that the current $100m threshold be increased to $500m to achieve a goal of reducing business costs to emerging managers while still enabling investor due diligence needed where most of the money is invested. For example, among hedge fund firms, according to HFRI, roughly 75% of hedge fund managers have assets under $500m, while about 95% of hedge fund assets are managed by those firms with over $500m. A $3.5b threshold is too high to make sense, given the degradation of investor due diligence capabilities where needed most.
13Fs are one of the few tools available to investors who are willing to "trust but verify" managers within the world of unregulated private funds. Such public filings help to ensure an honest conversation between managers and investors.
Who is the SEC working for - the investing public or investment management industry lobbyists? This proposed regulatory change with a $3.5b threshold may become a lightening rod of public opinion revolting against an SEC straying from its original mission. Helping wealthy hedge fund managers, especially those with over $500m in assets, at the expense of the public investment community will be hard to justify in any reasonable cost/benefit analysis. More time spent by $500m managers helped by this regulatory compliance relief on enhanced price discovery? Probably. Enhanced price discovery from a $3.49b manager? Not really - more like an enhanced yacht.
Best,
Jim McKee
Lafayette, CA