July 14, 2020
Subject: File No. S7-08-20 -- Reporting Thresholds for Institutional Investment Managers
Ladies and Gentlemen-
In concept, raising the 13(f) reporting thresholds after 45 years makes sense. $100M of 13(f) assets under management is, quite literally, not what it used to be. But focusing on market size, instead of simple inflation, is nonsensical here, because the market is also not what it used to be. In 1975, there were no ETFs and the concept of passive investing had just been invented by the legendary John Bogle.
It's stunning that the otherwise thorough analysis in your release seeking comment never mentions the percentage of the market that remains actively managed vs passively managed. But a truly transparent, meaningful analysis requires focus on that information.
Your analysis states: "In the years since 1975, the overall size of the U.S. equities market has grown at a rate significantly higher than the CPI or PCE. The legislative history indicates that the reporting threshold of section 13(f) was designed to focus on larger managers. We therefore believe that relying on a consumer price inflation measure such as CPI or PCE to account for 45 years of market growth would not adequately or appropriately capture the holdings and universe of managers contemplated by section 13(f)." But active management (and the managers engaged in active management) is what counts now in the context of 13(f), and that differentiation was absent in 1975.
Since far less of the market is actively managed now, a much lower threshold than $3.5B is in order to capture transparent information from active managers. Currently, about 50% of the market is passively managed, and it's likely to continue rapidly growing from here. Based on your own CPI and PCE inflation data, the 13(f) reporting thresholds should most wisely be set at about $500m (which would negate the filing requirement for 63% of current filers) or maybe as high as $1B (negating the filing requirement for 76% of current filers). As far as burden goes, the forms should be simplified.
Respectfully submitted,
Wayne Bloch