What You Need to Know
- Family offices like Archegos are exempt from the disclosure rules that apply to other types of investment advisors.
- Expect to see more SEC actions around Form 13F and Schedule 13D, which Archegos didn't have to file.
- The Dodd-Frank statute that authorizes fund advisor registration puts limits on the SEC.
The most common reactions to the news of Archegos Capital Management’s unraveling last month were variations of “Archegos who?” and “Where are Archegos’ SEC disclosures?”
The absence of any meaningful publicly available information about Archegos or its holdings highlights the fact that not all transactions and advisor roles require public disclosure.
Most commentary on the Archegos situation has called for greater disclosure, which may cause the Securities and Exchange Commission to try to compel that disclosure in ways that exceed its authority.
You will not find an Archegos Form ADV.
Among many other things, Dodd-Frank empowered the SEC to require registration of fund advisors. But Dodd-Frank also instructed the SEC to carve out “family offices” and exempt them from the registration requirement. In 2011, the SEC adopted a rule defining “family office” and excluding them from the requirement to register with the SEC so long as they met certain requirements.
Archegos is reportedly a family office, thus there is no SEC Form ADV that would disclose information other types of investment advisors must disclose.
Similarly, broker-dealers do not normally have to treat family offices as “retail customers” for purposes of Regulation Best Interest or as “retail investors” for Form CRS requirements.
We should expect Archegos to give rise to greater SEC scrutiny of family offices and proposals for tightening the definitions and exceptions that apply to family office disclosure.
However, Congress included the hedge fund advisor registration requirement in Dodd-Frank because the SEC had for years acted without any statutory authorization in requiring such registration and only stopped requiring registration when a federal appellate court famously struck down the policy as a result of a challenge by Phil Goldstein of Bulldog Investors.
It turned out Congress had never authorized the SEC to impose the fund advisor registration rule in the first place.
While Dodd-Frank ultimately provided the SEC with that authorization, the statute’s limitations should give the SEC pause before attempting to shrink the family office registration exemption in reaction to Archegos.
You will not find an Archegos Form 13F.
For decades, the SEC has required certain institutional investment managers to file a Form 13F, disclosing the names, shares, and fair market value of certain securities over which the managers exercise control.
The purpose for requiring this disclosure is to promote competition and decrease market volatility, but because the information can be valuable, the disclosure requirement has been met with resistance over the years in the form of court challenges and requests for exemption.
Even if Archegos qualified for the advisor registration exemption as a family office, that does not necessarily exempt Archegos from disclosing its securities holdings on Form 13F.