On January 26, 2022, the SEC issued Release Number IA-5950, a release that proposes to amend Form PF—a confidential reporting form required for certain SEC-registered investment advisors to private funds.
The proposal contains three amendments to Form PF in an effort to enhance private fund reporting to protect private fund investors.
SEC Chair Gary Gensler commented that this proposal comes in response to vast changes in the industry since the form’s initial adoption in 2011, citing examples such as the industry’s growth to $11 trillion along with evolving business practices, complexity of fund structures, and investment strategies.
He also noted the growing expertise that the SEC and Financial Stability Oversight Council (FSOC) acquired since 2011. An overview of the proposal follows.
Proposed Changes in Reporting
The proposed amendments would require new current reporting of certain events for large hedge fund advisors and advisors to private equity funds, decrease reporting thresholds for large private equity advisors and revise reporting requirements for large private equity advisors and large liquidity fund advisors.
New Current Reporting for Large Hedge and Private Equity Fund Advisors
The proposed amendment aims to give the SEC and FSOC access to more timely information about certain events that could flag distress at qualifying large hedge funds, private equity funds, or market instability.
Large Hedge Fund Advisors
The proposal would require large hedge fund advisors to file current reports within one business day of the occurrence of one or more reporting events with respect to their qualifying hedge funds pertaining to following matters:
- Extraordinary investment losses
- Significant margin and counterparty default events
- Material changes in prime broker relationships
- Changes in unencumbered cash
- Operations events
- Events associated with withdrawals and redemptions
Private Equity Fund Advisors
The proposal would require advisors to private equity funds to file current reports within one business day of the occurrence of one or more reporting events pertaining to following matters:
- Execution of advisor-led secondary transactions
- Implementation of general partner or limited partner claw-backs
- Removal of a fund’s general partner
- Termination of a fund or its investment period
Large Private Equity Advisor Reporting
This proposed amendment aims to provide useful empirical data to FSOC to better assess the extent to which private equity funds or their advisors could pose systemic risk while informing the SEC in its regulatory programs to better protect investors.
The amendment would reduce the threshold for reporting as a large private equity advisor from $2 billion to $1.5 billion in private equity fund assets under management.
Section four of Form PF would also require large private equity advisors to gather more information with respect to the matters listed immediately below.
- Private equity fund strategies
- Use of leverage and portfolio company financings
- Controlled portfolio companies and information on their borrowings
- Fund investments in different levels of a single portfolio company’s capital structure
- Portfolio company restructurings or recapitalizations
Large Liquidity Fund Advisor Reporting
This proposed amendment seeks to better enable the SEC and FSOC in assessing short-term financing markets while facilitating how they oversee these markets and those involved.
The proposed amendments would also require large liquidity fund advisors to report substantially the same information that money market funds would report on Form N-MFP, as the SEC proposes to amend it.
Form N-MFP in conjunction with Form PF would provide a complete picture of the short-term financing markets in which money market funds and liquidity funds both invest.
While initially listed on the SEC website beginning January 26, 2022, the SEC filed these proposed amendments in the Federal Register on February 17, 2022, where they will remain open for public comment until March 21, 2022.
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For more information about how these proposed changes could affect your fund, please contact your Moss Adams professional.
You can find additional resources at our Financial Services Practice.