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Welcome to the Capital Note, a newsletter about business, finance and economics. On the menu today: financial-disclosure reform, the British economy, and the pandemic power-grab.
13Fs Since 1975, the Securities and Exchange Commission has required investment funds with more than $100 billion in assets under management to file quarterly 13F forms disclosing equity holdings. These disclosures allow regulators, investors, and businesses to monitor the trades of sophisticated market participants and react accordingly.
The section 13(f) disclosure program had three primary goals. First, to create a central repository of historical and current data about the investment activities of institutional investment managers. Second, to improve the body of factual data available regarding the holdings of institutional investment managers and thus facilitate consideration of the influence and impact of institutional investment managers on the securities markets and the public policy implications of that influence. Third, to increase investor confidence in the integrity of the U.S. securities markets.
There are clear winners and losers as a result of 13Fs. Public businesses get a relatively reliable picture of their shareholder base, equipping them to engage actively with their investors as well as to anticipate potential activist campaigns. Unsophisticated investors are winners, too, because they can “piggyback” on the research and diligence of institutional managers.
But fund managers who must share their intellectual property on a quarterly basis lose out on investment returns. Indeed, institutional investors often attempt to circumvent 13F filings by accumulating positions in derivatives or convertible bonds rather than buying stock outright. Such maneuvering imposes deadweight costs on financial markets, while reduced returns overall decrease the incentive for price discovery.
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