On May 3, 2023, the Securities and Exchange Commission (SEC) adopted amendments to Form PF, which is the confidential reporting form for certain SEC-registered investment advisers to private funds. The goal of these amendments is to enhance the ability of the Financial Stability Oversight Council (FSOC) to assess systemic risk and to strengthen the Commission’s oversight of private fund advisers and its investor protection efforts.
SEC Chair Gary Gensler noted that, “In the 12 years since the Commission 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. They also nearly have tripled in size in the last decade. This makes visibility into these funds ever more important. Today’s amendments to Form PF will enhance visibility into private funds and help protect investors and promote financial stability.”
As stated in the SEC Fact Sheet, the adopted amendments:
- Require current reporting by large hedge fund advisers regarding certain events that may indicate significant stress at a fund that could harm investors or signal risk in the broader financial system;
- Require quarterly event reporting for all private equity fund advisers regarding certain events that could raise investor protection issues; and
- Require enhanced reporting by large private equity fund advisers to improve the ability of the Financial Stability Oversight Council (FSOC) to monitor systemic risk and improve the ability of both FSOC and the Commission to identify and assess changes in market trends at reporting funds.
According to the SEC’s fact sheet, the amendments will apply to:
- Large hedge fund advisers (i.e., hedge fund advisers with at least $1.5 billion in hedge fund assets under management);
- Private equity fund advisers (i.e., investment advisers with at least $150 million in private equity fund assets under management); and
- Large private equity fund advisers (i.e., private equity fund advisers with at least $2 billion in private equity assets under management).
Finally, the SEC’s fact sheet highlighted what will be required from these firms:
Current Reporting for Large Hedge Fund Advisers and Quarterly Event Reporting for All Private Equity Fund Advisers
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. The amendments to Form PF will also require large hedge fund advisers to file a current report as soon as practicable, but no later than 72 hours from the occurrence of one or more trigger events. Such trigger events 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.
All private equity fund advisers will be required to file an event report upon the occurrence of one or more trigger events within 60 days of each fiscal quarter end. Such trigger events include the removal of a general partner, certain fund termination events and the occurrence of an adviser-led secondary transaction.
This reporting will provide the Commission and FSOC with more timely information about large hedge funds that may indicate investor harm or present systemic risk, as well as about private equity funds that may indicate investor harm.
Revised Reporting Requirements for Large Private Equity Fund Advisers
The amendments will also improve FSOC’s ability to monitor systemic risk and the ability of both the Commission 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. For example, large private equity fund advisers will be required to report annually information pertaining to any general partner or limited partner clawback that occurred during the past year. 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.
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.
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