What Is SEC Form 13F?
The Securities and Exchange Commission's (SEC) Form 13F is a quarterly report that is required to be filed by all institutional investment managers with at least $100 million in assets under management. It discloses their equity holdings and can provide insights into what the smart money is doing in the market.
Managers are required to file Form 13F within 45 days after the last day of the calendar quarter. Most funds wait until the end of this period in order to conceal their investment strategy from competitors and the public.
Key Takeaways
- The SEC’s Form 13F must be filed quarterly by institutional investment managers with at least $100 million in assets under management.
- Congress intended these filings to provide transparency on the holdings of the nation’s biggest investors.
- Smaller investors frequently use these filings to determine what the “smart money” is doing in the market, but there are serious problems with the reliability and timeliness of the data.
Understanding SEC Form 13F
Congress created the 13F requirement in 1975. Its intention was to provide the U.S. public with a view of the holdings of the nation's largest institutional investors. Lawmakers believed this would increase investor confidence in the integrity of the nation's financial markets.
Firms that are considered institutional investment managers include mutual funds, hedge funds, trust companies, pension funds, insurance companies, and registered investment advisors.
Because 13F filings provide investors with a look at the holdings of Wall Street's top stock pickers, many smaller investors have sought to use the filings as a guide for their own investment strategies. Their rationale is that the nation's largest institutional investors are not only presumably the smartest, but their size also gives them the power to move markets. So investing in the same stocks—or selling the same stocks—makes sense as a strategy.
Key Issues With SEC Form 13F
Smaller investors who want to replicate the strategies of rock star money managers like Daniel Loeb, David Tepper, or Seth Klarman scrutinize 13F filings. The financial press often reports on what these fund managers have been buying and selling by comparing changes in quarterly filings. But there are a number of problems with 13F filings that warrant caution.
Unreliable Data
13F has drawn criticism from many groups who claim it provides a loophole for hedge fund managers. In fact, in a 2010 statement, the SEC itself acknowledged the form had many problems and recommended a number of changes should be made in order to ensure "useful and reliable data is provided to the public and government regulators."
The SEC's internal review also noted that although "the SEC would be expected to make extensive use of Section 13(f) information for regulatory and oversight purposes, no SEC division or office conducts any regular or systematic review of the data filed on Form 13F."
Perhaps this explains how infamous fraudster Bernard Madoff dutifully filed 13F forms every quarter and still ran a successful Ponzi scheme.
Timing of Reporting
Another frequent criticism of the form is the fact that it only requires fund managers to file 13F reports 45 days after the end of each quarter. Most managers submit their 13Fs as late as possible because they do not want to tip off rivals to what they are doing. By the time other investors get their hands on those 13Fs, they are looking at stock purchases that may have been made more than four months prior to the filing.
In a March 31, 2021 letter to Allison Herren Lee, the acting chair of the SEC, the progressive nonprofit Americans for Financial Reform urged the SEC to "expand both the frequency of Form 13F reporting and the range of financial products required to be disclosed on this form."
Another group, the National Investor Relations Institute, recommended the SEC implement a monthly reporting of ownership positions along with a 15-day window.
Herd Behavior
One risk for both professional and retail investors is the tendency of money managers to borrow investment ideas from one another. Hedge fund managers are no more immune to behavioral biases than anyone else. After all, if you are a fund manager, it is safer to be wrong with the majority than wrong alone. This can lead to crowded trades and overvalued stocks. And if small investors are late to the party getting into a trade, they are likely to be late getting out.
An Incomplete Picture
Another issue with 13F filings is that funds are only required to report long positions, in addition to their put and call options, American Depositary Receipts (ADRs), and convertible notes. This can give an incomplete and even misleading picture, because some funds generate most of their returns from their short-selling, only using long positions as hedges. There is no way to distinguish these hedges from genuine long positions on 13F forms.
Who Must File SEC Form 13F?
Institutional managers with assets under management of $100 million or more must file SEC Form 13F, disclosing their equity holdings.
What Is the New 13F Rule?
The new 13F rule, announced by the SEC in 2022, requires filers to round the security holding values to the nearest dollar rather than the nearest thousandth dollar. It also requires that Form 13F be filed via the SEC's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.
What Is the Difference Between Form 13D and Form 13F?
SEC Form 13F requires institutional managers with $100 million or more in assets to disclose their holdings. Form 13D is a beneficial owner report that has to be filed when a person or group of persons acquire more than 5% of a voting class of a company's equity securities.
The Bottom Line
SEC Form 13F is required to be filed by institutional managers who manage $100 million or more in assets. The goal is to bring transparency into the financial holdings of such large managers. Though the form does bring transparency, there have been many criticisms of the form, which have yet to be addressed by the SEC.
