The SEC requires all institutional investment managers with at least $100 million in AUM to file Form 13F every quarter. This form records important portfolio metrics such as AUM, holdings with instrument and issuer details, the fair market value of securities, and number of shares owned.
Similarly, FORM ADV is required to be filed by an investment advisor that manages more than $25 Million in AUM. This form discloses census type information, AUM, details on fees and expenses, and information on any disciplinary actions.
Form 13F throws some light on how institutional investors manage funds that they hold under their discretion. Investors can use this information to evaluate the strategies of the largest fund managers in the market. Once historical filings are aggregated, one can also analyze market timing and how these strategies have changed over time.
However, when Form 13F is used in isolation and without checks, it can have multiple drawbacks such as inaccurate information because of filing errors, dated holding details, and distorted ownership interest. For making informed investment decisions, investors can use data from Form ADV along with 13F.
Archegos Capital Management was a family office and hence exempted from registering with the SEC. This meant that Archegos was not required to file Form ADV, Form 13F, and Schedule 13D. The SEC requires managers to disclose information about investment discretion over $100 million on their securities and reports suggest that Archegos held sufficient assets, which warranted some type of public reporting. It was also found out that the firm would frequently employ swap derivatives, an instrument that is not required to be reported.
Following the Archegos debacle, one can only imagine how many other such exempted family offices have avoided disclosing their investments and are silent players in the market.
In March 2021, AFR (Americans for Financial Reform) urged the SEC to expand the range of requirements and the frequency of Form 13F to effectively include family offices in the registration process and “plug the regulatory gaps for family offices managing more than $1 billion”.
The AFR also pushed the SEC to include short stock sales, short option positions, and derivatives such as total return swaps to the list of financial products that need to be disclosed.
The SEC is now moving to implement the swaps disclosure requirement of the Dodd-Frank financial reform law from a decade ago. That rule is a collaborative venture among several SEC divisions and is supposed to go into effect this fall. "Beginning in November 2021, SBS ( Security-Based-Swaps) entities will be required to register with the SEC and will be subject to various requirements, which, among other things, include capital, margin and segregation." (SEC)
