Grygo is the chief content officer for FTF & FTF News.
A regulatory change of importance got lost in the avalanche of news that we deal with every day — the SEC is adopting amendments to Form PF, the confidential reporting form launched 12 years ago for hedge funds and private equity funds.
“Currently, advisers to private funds file Form PF on a quarterly or annual basis, depending on the size and type of private funds they advise,” says the SEC.
But that is changing.
“In the 12 years since we first adopted Form PF, private funds have evolved significantly in their business practices, complexity, and investment strategies. Private funds today are ever more interconnected with our broader capital markets,” says SEC Chair Gary Gensler in a public statement about the amendments.
“Private funds nearly have tripled in size in the last decade. Today, private funds managed by registered investment advisers hold approximately $21 trillion of gross assets, including $20 trillion reported on Form PF — nearly the size of the $23 trillion U.S. commercial banking sector. Including exempt reporting advisers, the entire private fund space is as large as $25 trillion,” Gensler says. “This makes visibility into these funds ever more important.”
The SEC says its amendments will improve the ability of the Financial Stability Oversight Council (FSOC) “to assess systemic risk,” will bolster investor protections, and will widen the SEC’s oversight of private fund advisers.
“The amendments will require large hedge fund advisers and all private equity fund advisers to file current reports upon the occurrence of certain reporting events that could indicate significant stress at a fund or investor harm,” according to the SEC.
Reporting events for large hedge funds will “include certain extraordinary investment losses, significant margin and default events, terminations or material restrictions of prime broker relationships, operations events, and events associated with withdrawals and redemptions,” according to the SEC.
The SEC wants large hedge fund advisers to file these reports “as soon as practicable, but not later than 72 hours from the occurrence of the relevant event,” according to the announcement.
For private equity fund advisers, events that need to be reported are “the removal of a general partner, certain fund termination events, and the occurrence of an adviser-led secondary transaction. Private equity fund advisers must file these reports on a quarterly basis within 60 days of the fiscal quarter end,” the SEC notes.
The regulator’s amendments “will also require large private equity fund advisers to report information on general partner and limited partner clawbacks on an annual basis as well as additional information on their strategies and borrowings as a part of their annual filing,” the SEC says.
In addition to the greater transparency, the amendments will help the FSOC better monitor systemic risk and help the SEC and FSOC “to evaluate material changes in market trends at large private equity funds by providing information on certain events that could significantly affect markets,” according to the SEC.
“The final amendments will also provide useful empirical data to FSOC, such as more information on fund strategies and the use of leverage, to better assess the extent to which private equity funds or their advisers might pose systemic risk and to inform the Commission’s regulatory programs for the protection of investors,” according to the SEC.
Gensler, in his comments, points to another change for Form PF.
“Separately, last year, we jointly proposed with the CFTC updates to the quarterly periodic reporting for advisers to large hedge funds and annual periodic reporting for all private fund advisers,” Gensler notes. “Working with the CFTC, we continue to evaluate public comment on that joint proposal.”
If you don’t like the SEC’s changes or you have additional areas of concern, you will have to put your two cents (or more) in soon.
“The amendments for current reporting will become effective six months after publication of the adopting release in the Federal Register, and the remaining amendments will become effective one year after publication in the Federal Register,” according to the SEC.
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