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Hedge Funds allowed to keep equity holdings secret
#1
The SEC has proposed to allow smaller hedge funds (less than $3.5 billion in AUM) to keep their portfolio holdings private, only requiring the top 10% to file 13F. What could this mean for investors from the decrease in transparency and the reduction in public information into the market? 

https://www.ft.com/content/c68ca89c-3f9b...bea70ed859
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#2
This may actually help in reducing volatility in market, especially because there are many investors, both retail and institutional, that act and rely heavily on the movements that hedge funds create. Another point that should be noted is that hedge funds are not open to any investor and so those that have the ability to invest with hedge funds will still have the transparency of investment decisions that the hedge fund undertakes.
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#3
(07-11-2020, 11:44 AM)Shreya6 Wrote: This may actually help in reducing volatility in market, especially because there are many investors, both retail and institutional, that act and rely heavily on the movements that hedge funds create. Another point that should be noted is that hedge funds are not open to any investor and so those that have the ability to invest with hedge funds will still have the transparency of investment decisions that the hedge fund undertakes.

I do agree that this will help in reducing the volatility in the market. But, it does seem to make investors in hedge funds restricted to the fund they are investing in since they will lack the information on other hedge funds for potential investments. This reduction in transparency will make investors think twice before they begin investing with hedge funds, all but the large ones. So maybe we could see a convergence of investors to invest only with the big, transparent hedge funds, which could possibly decrease the holdings of smaller hedge funds.
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#4
(07-12-2020, 10:22 AM)timfoster10 Wrote:
(07-11-2020, 11:44 AM)Shreya6 Wrote: This may actually help in reducing volatility in market, especially because there are many investors, both retail and institutional, that act and rely heavily on the movements that hedge funds create. Another point that should be noted is that hedge funds are not open to any investor and so those that have the ability to invest with hedge funds will still have the transparency of investment decisions that the hedge fund undertakes.

I do agree that this will help in reducing the volatility in the market. But, it does seem to make investors in hedge funds restricted to the fund they are investing in since they will lack the information on other hedge funds for potential investments. This reduction in transparency will make investors think twice before they begin investing with hedge funds, all but the large ones. So maybe we could see a convergence of investors to invest only with the big, transparent hedge funds, which could possibly decrease the holdings of smaller hedge funds.
I disagree, if smaller hedge funds see that investors are going to larger hedge funds, they will start to publish their equity holdings as the SEC is allowing a choice. Furthermore, investors that give their money to hedge funds have to meet certain a net worth criteria and so most investors that invest in hedge funds do it on the basis of personal relationships. Even if equity holdings are not published , performances still are, so in my opinion I do not see this move taking investors away from small hedge funds.
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#5
(07-12-2020, 02:19 PM)Shreya6 Wrote:
(07-12-2020, 10:22 AM)timfoster10 Wrote:
(07-11-2020, 11:44 AM)Shreya6 Wrote: This may actually help in reducing volatility in market, especially because there are many investors, both retail and institutional, that act and rely heavily on the movements that hedge funds create. Another point that should be noted is that hedge funds are not open to any investor and so those that have the ability to invest with hedge funds will still have the transparency of investment decisions that the hedge fund undertakes.

I do agree that this will help in reducing the volatility in the market. But, it does seem to make investors in hedge funds restricted to the fund they are investing in since they will lack the information on other hedge funds for potential investments. This reduction in transparency will make investors think twice before they begin investing with hedge funds, all but the large ones. So maybe we could see a convergence of investors to invest only with the big, transparent hedge funds, which could possibly decrease the holdings of smaller hedge funds.
I disagree, if smaller hedge funds see that investors are going to larger hedge funds, they will start to publish their equity holdings as the SEC is allowing a choice. Furthermore, investors that give their money to hedge funds have to meet certain a net worth criteria and so most investors that invest in hedge funds do it on the basis of personal relationships. Even if equity holdings are not published , performances still are, so in my opinion I do not see this move taking investors away from small hedge funds.
Most investors in hedge funds are institutional investors who manage cash for the government, unions, or pension funds of corporations. These investors surely do not give their money on the sole basis of personal relationships. Moreover, these investors are professional, though performance is of acute importance, holdings are also important to access to know the hedge fund's diversification, level of risk and level of dilution in specific asset categories. I think you are confusing on what the SEC's aim is. SEC aims to increase transparency in the market to the public by eliminating loopholes and allowing for markets to not have asymmetries. By allowing to make listings private, they are decreasing transparency, which is against their aim and thus, in my opinion a contradiction to why they exist in the first place.
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