Hedge funds push back as SEC weighs ending mandatory quarterly reporting

Hedge funds and other investors are opposing a proposed US Securities and Exchange Commission (SEC) plan to shift public companies from quarterly to semi-annual financial reporting, according to Bloomberg. The SEC, led by Chairman Paul Atkins, received over 200,000 comments on the proposal, making it the largest public-comment docket in the regulator's history.

Supporters of semi-annual reporting claim it could allow companies to concentrate on long-term strategy instead of short-term earnings and provide managers with more flexibility during volatile periods. However, critics argue that the proposal could delay crucial information from reaching investors, making it easier for companies to conceal business declines.

Bloomberg's analysis of S&P 1500 companies' revenue data from 2010 found that significant negative revenue movements would have been hidden more than twice as often under semi-annual reporting as positive movements. During market volatility, such as the Covid-19 pandemic, up to 15% of material quarterly revenue declines could have been obscured compared to 7% of positive increases.

The proposal has also faced criticism from the hedge fund industry, with the Managed Funds Association urging the SEC to retain timely information while simplifying disclosure elsewhere. Despite the opposition, analysts believe there is a high probability the SEC may adopt a semiannual reporting framework by 2027, with major companies such as Eli Lilly and ExxonMobil supporting the change.