John Paulson, Stanley Druckenmiller and George Soros are among billionaire investors who would no longer have to reveal which stocks they own under a U.S. plan to ease disclosure rules.
While the legendary traders all oversee billions of dollars, the value of each of their firms' equity holdings traded on U.S. exchanges is less than the $3.5 billion threshold that would trigger public reporting in the Securities and Exchange Commission's proposal. They are far from alone, as other Wall Street icons below that level include Louis Bacon, David Tepper, David Einhorn and Paul Tudor Jones.
Even Ray Dalio's Bridgewater Associates, the world's biggest hedge fund manager with $138 billion of assets, is in striking distance of the SEC's suggested limit because the firm holds just $5 billion of stocks, according to its most recent quarterly filing with the regulator. It would be nearly impossible for Bridgewater to get under the existing threshold of $100 million — a level that hasn't been changed in more than four decades.
Paul Singer's Elliott Management has about $3.4 billion in stocks and convertible bonds, and holds options on another $2 billion in equities, according to its latest report. Depending on the market value of those options, which isn't disclosed, Elliott might also avoid revealing its equity investments under the SEC's proposal.
The SEC announced July 10 it was considering increasing the rule's reporting threshold, with Chairman Jay Clayton saying the move would allow the agency to continue monitoring the "holdings of larger investment managers while reducing unnecessary burdens on smaller managers." Warren Buffett and giant mutual fund companies like BlackRock and Fidelity Investments would continue reporting equity investments every three months in filings known as 13Fs under the SEC's plan.
But that's not true for the majority of hedge funds and family offices because few own $3.5 billion in stocks. Many managers have long complained about having to reveal their holdings — stakes that are closely monitored by other investors, Wall Street analysts and the financial media — because they believe the disclosures allow traders to steal some of their best ideas.
The 13F filings are more a snapshot than a true depiction of what fund managers have in their portfolios. That's because traders have 45 days after a quarter ends to submit the forms to the SEC. They show holdings in stocks that trade on U.S. exchanges, as well as options and convertible debt. The filings don't include non-U.S. traded securities or wagers against stocks, nor do they show the price at which a fund bought or sold a security.
By raising the disclosure threshold to $3.5 billion, the SEC estimated that industry compliance costs would be cut by as much as $136 million a year. The agency added that almost 90% of smaller fund managers would no longer have to file 13Fs, but more than 90% of U.S. stock holdings currently reported would continue to be publicly disclosed.
In its proposal, the SEC discounted the impact of fewer firms submitting 13Fs because the agency gets much of the information through other means, such as different documents and its routine surveillance of markets. Smaller fund managers have advocated for being exempt from 13Fs.
Another group the SEC cited as supporting a higher reporting level is the National Investor Relations Institute, whose members include executives at 1,600 public companies.
NIRI spokesman Ted Allen said his group does back an increase but mostly as a bargaining chip. Heightening the threshold was offered as an "olive leaf to the investment community" so it wouldn't fight NIRI policy goals of requiring shareholders to file 13F reports more frequently and the disclosure of short positions, Mr. Allen said. He added that many companies rely on 13Fs to find out who owns their stock and that the SEC's $3.5 billion proposal is more aggressive than what NIRI had in mind.
"If this rule goes through, you will see more small and midsized companies getting ambushed by hedge funds," Mr. Allen said. "This will increase activism in all of the midcap companies because there will be less transparency."
Even if the SEC approves its proposal, funds that acquire more than a 5% stake in a public company would still have to disclose such holdings and any activist intentions within 10 days. Such positions must be revealed in separate filings known as 13Ds.
