13F Filings. How do hedge funds prevent their ideas being stolen?
Hi,
Was wondering how funds manipulate their 13F filings so that competitors cannot simply emulate the stocks they have in their 13F filings? Would be keen to hear from anyone with direct, first hand knowledge.
Well 13F is only equity holdings, so it immediately becomes (essentially) useless for funds that trade across different asset classes.
They are reported quarterly but don’t have to be filed until 45 days after the quarter finishes (so if you are a manager with a shorter holding period the information here is useless), so the information can be pretty stale. AND you report longs, not shorts, so for anyone that is market neutral or anything similar you really don’t get much information.
In such case for net long funds with longer hold periods I assume it can be more indicative of the funds holdings. Do you know how in their case they approach reporting?
Well there are a bunch of added complexities:
1) you don’t have to file foreign equities (that aren’t listed in US exchanges), so you now reduce your universe to funds that focus on US equities
2) you report the aggregate holdings, so if you have a few funds (or PMs etc) you get the aggregate holdings, so imagine you have a “growth fund” and a “value fund” or something similar you could shift your view on a particular company and sell all your shares in one and buy the same amount in the other and you would have no change in the amount held. This is also interesting if you have passive investment or index replication as part of your investments, as your bets on alpha vs index replication become more muddled.
3) you don’t report options you write (ie. Short options) so that adds a layer of getting exposure that might not be visible
4) firms can file to have information deemed confidential and delay the filing/release of information
5) you must report securities you loan to a third party but they do not have to report borrowed securities. So again, depending on the agreement it becomes harder to understand what bets are actually occurring with these agreements.
That is off the top of my head. Keep in mind I don’t work at a mostly long, equity only place.
Very thorough explanation, thank you for your comment. Was interested in the topic as I had heard some people mentioning strategies that use 13F filings etc and wanted to know the downside.
I think the most common way to hide holdings is buying on swap.
A lot people also monitor large swap counterparties (CS, Citi, Nomura) to tease out what may become an activist stock etc.
There are a lot of "loopholes" but by and large if you are mostly a long only US focused fund that doesn't trade short term, a 13F gives a very clear picture of what names you are constructive on and how constructive on it you are (is it a 20mm position for the fund or a $500mm position). Even if you are a long short like tiger global, it still tells you what they are betting big bucks on within 45 days overall.
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