Uncovering Hedge Fund Skill from thePortfolio Holdings They Hide

This paper studies the “confidential holdings” of institutional investors, especially hedge funds, where thequarter-end equity holdings are disclosed with a significant delay through amendments to the Form 13F.Our evidence supports hiding private information as the dominant motive for hedge funds to seekconfidentiality. Hedge funds managing large risky portfolios with less conventional investment strategiesseek confidentiality more frequently. Stocks included in the confidential holdings of hedge funds aredisproportionately associated with information-sensitive events such as mergers and acquisitions, andshare characteristics indicating greater information asymmetry. Moreover, confidential holdings of hedgefunds exhibit superior performance up to the typical confidential period of twelve months, suggestingvaluable private information. Overall, our study presents new evidence on the performance of hedgefunds, provides reference on the potential limitations of the standard 13F holdings databases whichusually exclude the confidential holdings, and contributes to the policy debate regarding ownershipdisclosure.