Form 13f Filings – The Basics
In an attempt to strengthen public trust in some of the nation's largest institutional investors, the United States Congress instituted the requirement for 13F disclosure in 1975. Since then, certain investment managers have been required to file 13F forms every quarter, disclosing their investments over the preceding three months. Form 13F filings can be accessed freely via the SEC's EDGAR system – so for all intents and purposes, this information is publicly available.
The law only applies to institutional investment managers with at least $100,000,000 in assets under management (AUM), requiring full disclosure of their current investments in the preceding calendar quarter every year. These investors are legally required to submit their 13F filings no later than 45 days after the end of a quarter.
Since this effectively means that after each quarter of the year, the public can scrutinize these investors' holdings in some detail, many people have come to rely on this information to inform their own decisions. They assume that, since these powerful investment managers have both the money and the talent required to make the most informed investment decisions, mimicking their actions allows other investors to benefit from their research, insight and experience.
Do Hedge Funds Have to File 13f Forms?
Hedge funds fall under the definition of "institutional investment managers", which SEC guidelines use to determine who is required to submit SEC form 13F filings. This means any fund with at least $100,000,000 assets under management is legally required to submit their form every quarter.
When Do Hedge Funds File 13f Information?
Entities required to file their 13F have 45 days after the end of a quarter to do so. Therefore, both hedge funds and other institutional investment managers tend to submit their SEC filings as late as possible. This is because they know that other players, including direct competitors, will look carefully at their filings and might attempt to duplicate their portfolios.
Do Private Investors Have to File With the SEC?
Under most circumstances, private investors don't have to file their own 13F forms. If you're a private citizen and you don't invest on behalf of another person or legal entity, you probably don't fall within the SEC's definition of an "institutional investment manager". And as long as you don't manage assets worth $100,000,000 or more, you don't fall under the disclosure requirement even if you were an institutional investment manager. If you're unsure if you fall under the SEC's guideline in this regard, you should contact a lawyer to get legal advice.
How Useful Are These Filings for Private Investors?
The original intention behind the 13F requirement has been to disclose to the public which of the nation's top fund managers invested in which stocks, securities or other assets. So when private investors started to use these filings as "guidelines" for their portfolio, that definitely wasn't what Congress had in mind. There is a lot of debate over whether this approach to making investment decisions is even effective. There are multiple reasons why 13F filings are considered to give an incomplete picture of how most funds earn their money:
- Since form 13F can be filed as late as 45 days after the end of the quarter, the information therein may be as old as four months.
- Funds are only required to disclose their long positions (which hedge funds often use only for hedging purposes), but not their short positions.
- If multiple people copy a famous hedge fund's investment ideas, this herd behavior may lead to overvaluing assets.
In short, 13F filings may help you decide which stocks to invest in (or which funds to invest in, depending on which stocks they favor). But the information presented in SEC 13F filings is neither complete nor accurate enough to be entirely reliable. SEC filings may seem like an easy way to duplicate the success of "smart money managers". Still, experienced investors know that they are – at best – only one of many data points which inform your investment decisions.
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