Beyond 'Going Dark': The SEC's 13F Proposal And Hedge Fund Activism

Abstract

The Securities and Exchange Commission recently proposed eliminating quarterly disclosures for 90% of institutional investment managers. According to prominent lawyers, journalists, and industry players, the proposal will bolster hedge fund activists by allowing them to “go dark,” build up positions in companies in secret, and then “ambush” unsuspecting managers who will have no choice but to give in to their demands.

This Essay challenges this “going dark” thesis. I argue that it exaggerates the likely effects of the SEC proposal, which may actually reduce the volume of hedge fund activism. I also argue that the “going dark” thesis misses a more significant potential cost of the proposal: reducing the long-term benefits derived from activism.

Keywords: Securities and Exchange Commission; 13F; Hedge Fund Activism