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IHS Markit analyzed the 3000 largest companies in the United
States to identify which issuers and investors would be most
affected by the SEC's proposal to increase the 13F threshold to
$3.5B. At an issuer level, we found that micro cap and Energy
companies would be most severely affected, while mega cap and
Utilities companies would see the least impact. At an investor
level, we found the proposal would noticeably impact alternative
and high turnover investors, while index and low turnover investors
would see little impact. Finally, we looked at activist investors
and found that 86% of them would no longer be required to file
13F's. The analysis below is a follow up to our initial
article written on July 13th which examined the proposals
impact on issuers top-100 shareholder lists.
Recap of the SEC Proposal
The proposal states that investment managers with less than $3.5
billion in U.S. stockholdings would no longer need to reveal the
details of their portfolios. Those details include the number of
shares held in a company and the value of those holdings at
quarter's end. The current threshold, which has remained unchanged
since its 1975 introduction, is $100 million.
This change would have a dramatic impact as only ~600 of the
~5,200 investment managers that filed 13F's last quarter have over
$3.5B in EAUM. This means that nearly 90% of investment managers
that currently disclose their holdings would no longer be required
to. However, over 90% of the dollar value of the securities
currently reported is held by these ~600 firms. This dramatic
difference is because the investment universe is largely dominated
by a few players.
Issuer Analysis
The full implications of this proposal are not fully known but
IHS Markit decided to test the proposal on the entire Russell 3000
to identify the potential impact of the SEC increasing the 13F
threshold to $3.5B.
1 - Market Cap
Market cap played a significant role in how much a company would
be affected by the proposal. We found that mega cap (4.4%) and
large cap (5.5%) companies would only lose insight into about
1/20th of their total shares outstanding. However, small cap
(14.6%) and micro cap (17.1%) companies would lose insight into
roughly three times more shares.
2 - Industry
Industry would also be notably impacted, as the most affected
industry, Energy (16.5%), would lose nearly three times more than
the least affected industry, Utilities (6.0%). Recent stock
performance did not appear to be a factor as Technology (12.8%) and
Healthcare (14.9%) would both be severely affected even though they
have outperformed the market lately.
Investor Analysis
In this section, we looked at the type of investors that would
benefit most and least from the proposal and the results were even
more noticeable.
1 - Style
Looking at investment style, there was a massive dispersion on
who would be affected. Index investors would be least affected as
they would still have to file for 99% of the dollar value which
they currently file for. However, it should be noted that index
investing is largely dominated by BlackRock, Vanguard, and State
Street. In terms of long only traditional investing, there was
relatively little variance with all styles having a range of 6.1%
to 8.5% of total filing dollars lost. However, specialty investors
(20.4%) and alternative investors (32.9%) are the clear outliers as
they would dramatically file for less dollars.
2 - Turnover
Interestingly, turnover rate ended up being more influential
than investment style. Low turnover firms would still have to file
for 96% of their share value while very high turnover firms would
only have to file for 56% of their share value. That means very
high turnover firms would not have to file for 11 times more of
their share value than low turnover investors.
3 - Activists
The proposal would have a momentous effect on activist investors
as an astounding 86% of them would no longer be required to file
13F's. Activists tend to build concentrated positions and thus many
could still build notable positions with less than $3.5B in EAUM.
This threshold could apply to a few titans of the industry as many
activists have only a small portion of their total portfolio in
registered 13F positions.
Other interesting facts:
On average, 55% of the investors on an issuer's shareholder
list would stop filing 13F's
On average, 69% of the hedge funds on an issuer's shareholder
list would stop filing 13F's
IR Immune investors (index, quant, brokers) would stop filing
for 2% of their share value, while active investors would stop
filing for 10% of their share value
To view similar articles, please visit our knowledge hub. For a deeper
company specific analysis, reach out to our
Situational Analytics team.
IHS Markit's Situational Analytics service offers tailored
analyses designed to help companies better understand their current
strategy and positioning in the context of peers, investors, and
the overall market. The group provides benchmarking considerations
along with scenario modelling to identify the impact of a major
change in an issuer's story.
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.