The Securities and Exchange Commission is proposing to raise the minimum for asset managers required to file quarterly disclosures of their investment activities and holdings to $3.5 billion, up from $100 million, drawing the ire of one SEC commissioner and several securities experts.
The move would eliminate the need of some 90% of investment managers — about 4,500 of today’s 5,000 current filers — to complete Form 13F, including many hedge funds and mutual fund firms.
“Today’s proposal will update, for the first time in over 40 years, the 13F reporting threshold to a level that furthers the statutory goal of enabling the SEC to monitor holdings of larger investment managers while reducing unnecessary burdens on smaller managers,” SEC Chairman Jay Clayton said in a statement late Friday.
The proposed new threshold is based on the growth of the U.S. equities market between 1975 and December 2018. The 1975 threshold applied to asset managers representing roughly 75% of the dollar value of all equity securities, as does the much higher $3.5 billion today, according to the SEC.
It does not reflect the value of $100 million, adjusted for inflation, which would be near $500 million, according to the Bureau of Labor Statistics inflation calculator.
Smaller asset managers could save $15,000 to $30,000 in compliance costs, according to the SEC.
Critiques of 13F Proposal
SEC Commissioner Allison Herren Lee criticized the proposal, noting in a statement that it eliminates “visibility into portfolios controlling $2.3 trillion in assets,” “lacks a sufficient analysis of the costs and benefits,” glosses over the costs of “losing transparency,” and exaggerates the savings for asset managers.
Moreover, according to Lee, the proposal “does not address substantial uncertainty” about the commission’s authority to pursue these changes. The SEC has the authority to lower the threshold but not raise it, according to Lee, who cited the Securities Acts Amendments of 1975.
She said the proposal, which is subject to a 60-day comment period after publication in the Federal Register, “joins a long list of recent actions that decrease transparency and reduce both the Commission’s and the public’s access to information about our markets.”
Others agree. “Investors benefit from more, not less, transparency about the firms they work with and ownership data on stocks and ETFs is already limited,” Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA Research, told ThinkAdvisor. “However, assets are concentrated in larger firms that will continue to have to disclose what they own.”
Securities law professor Ann Lipton of Tulane University tweeted Friday: “The world has changed but the SEC wants to restore the ‘original’ purpose of the 1975 regulation, without considering how the world has changed to adapt to that regulation. It’s like plucking out blocks from a Jenga tower.”