July 30, 2020
Reducing the requirement for most mutual fund and hedge fund managers to produce 13-Fs on a quarterly basis would reduce the front-running of trades, but it would substantially ruin the relationship between hedge funds and allocators as well as the transparency which such allocators can receive from hedge funds. Creating and compiling a detailed and color-coded review of 13-F filings is greatly beneficial for the two fund-of-fund products that I work for. Perhaps a better way to reduce front-running and retail investors / allocators cherry picking long ideas from hard-working hedge fund managers is to require more stringent compliance policies on allocators which prevent them from investing in long positions held by hedge fund managers at quarter-ends. My firm already does that as we are required to report all trades that are not mutual funds or ETFs on a quarterly basis. The portfolio manager, CFO/CCO and I (senior analyst) have never invested in a single-stock name since our first fund-of-funds product began operating in 2006, yet this law would kill us in terms of transparency that we could use to measure strategy drift, the liquidity of underlying positions and portfolio management tactics utilized by hedge funds such as trading around positions, remaining emotionally sound and adding to positions during market drawdowns in which a company with strong fundamentals sees its share price punished by the market, whether the fund utilizes stop losses, etc.