Do Hedge Funds Have to Disclose Holdings?
Original post by Geri Terzo of Demand Media
Hedge funds have been among the most loosely regulated investment vehicles in the financial industry. In 2011, the landscape changed as regulators put forth a set of new rules to more closely monitor investment firms, including hedge funds. As a result of the new legislation, hedge funds now have to make certain disclosures about holdings, but current details remain confidential to protect a fund's competitive position.
Hedge funds that oversee at least $1 billion in assets under management are required to disclose investment holdings to the U.S. Securities and Exchange Commission, according to an article on the CNBC website. Prior to 2011, hedge fund managers were not required to share any trading information and the article suggests that the requirements are likely to be bothersome for hedge funds. Fund managers must disclose details surrounding trading positions, including the amount of leverage, or debt, used, as well as the source of any debt.
Regulation for smaller funds is somewhat less cumbersome. Managers of smaller hedge funds need to make less-frequent SEC filings in comparison with the larger funds. Small hedge funds are not required to disclose the same detail about holdings as larger funds, either. Instead, small hedge fund requirements are more general and surround revealing trading strategies and details about the level of debt and risk associated with trades. Other disclosures include Information about hedge fund performance as well as the regional concentration of investors.
The premise behind the ramped-up controls in the hedge fund industry is to keep any potential failures that might occur among hedge fund traders from posing a systemic risk to the economy, according to the CNBC website. The theory held by lawmakers is that by viewing hedge fund holdings, regulators can recognize if the economy might be heading toward some colossal failure. Hedge funds and other market participants, however, question how policymakers who may not be experts in the financial markets and the complex strategies used by traders might be able to identify such risks.
Hedge funds overseeing $100 million or more in assets under management make further disclosures about holdings to the SEC and the documents are available to the public. The filing is called a 13F, and it discloses details about some of the largest stock positions hedge funds have been exposed to. The information, however, is from the previous quarter, according to "The New York Times." It is very possible that portfolio holdings have changed by the time the document is published.
- Wolters Kluwer Law And Business; SEC and CFTC Propose Joint Form..; James Hamilton; January 2011
- J.H. Cohn LLP; SEC Votes On Form PF; February 2011
- CNBC; New Hedge-Fund Disclosure Rules Probably Won't Help at All ; John Carney; January 2011
- "The New York Times"; Getting a Glimpse Into Hedge Funds' Holdings; Azam Ahmed; February 2011
About the Author
Geri Terzo is a business writer with over 15 years experience reporting on Wall Street. Her coverage ranges from institutional investing, including hedge funds and investment banking, to family topics and her career experience includes work for Fox Business, CNBC and "IDD Magazine." Terzo is a graduate of Campbell University, where she earned a B.A. in mass communication.