SEC Proposes Changes to Form PF Reporting | Knowledge

On January 26, 2022, in a 3-to-1 vote, the United States Securities and Exchange Commission proposed amendments Form PF, the form used by registered investment advisers to report information about the private funds they manage (the proposal version). The proposed amendments would modify the reporting requirements of large hedge fund advisers, private equity fund advisers and large liquidity fund advisers by

  • impose new accelerated “current reporting” requirements for qualifying hedge funds by large hedge fund advisers and all private equity funds by private equity fund advisers
  • increase the number of advisers subject to the “large private equity adviser” reporting requirements by lowering the threshold for private equity assets under management for this designation from US$2 billion to US$1.5 billion
  • expanding the scope of private equity fund disclosures by large private equity fund advisors
  • broaden the scope of disclosures to be disclosed for liquidity funds by large liquidity fund advisors

Statements by registered investment advisers for funds designated as real estate funds, securitized assets or venture capital funds on Form PF would not be changed under the proposed amendments.

Our opinion

The changes proposed last week were the first step in a rule-making process. Despite the significant changes proposed, the public comment period for this proposal is only 30 days after its publication in the Federal Register (which has not happened as of the date of this alert, but will probably happen imminently). After the comment period ends, the SEC will review those comments and then issue a final rule. This regulatory process takes several months.

The SEC will likely have to respond to substantial public comment on whether the proposed changes are consistent with or different from the intent and purpose of the Form PF – a matter of debate within the SEC itself. The SEC’s stated objective for the proposed amendments is that the additional disclosures provided by advisers on Form PF would enhance the SEC’s understanding of the private funds industry and strengthen its ability to protect investors. In the proposed statement, SEC staff notes that the proposed changes would not change the confidential and non-public status of information provided by counsel to the SEC on Form PF, but reiterates that the SEC may “use information from the Form PF in an enforcement action and to assess potential systematic risk Chairman Gary Gensler notes in the accompanying statement that he believes these amendments are consistent with the original intent of the SEC in adopting Form PF. In his declaration Accompanying the proposed version, Chairman Gensler expresses his support for the proposed changes, saying that one of the main purposes of the Form PF statement when it was adopted in 2011 was to shed “light on a growing part of the financial sector that does not wasn’t transparent to regulators: … private funds. On the other hand, Commissioner Hester Peirce in her dissenting statement characterizes the changes as representing “a fundamental change in the scope and purpose of Form PF”. She also worries that “requiring near-immediate reporting of localized events would turn the PF form into a tool for the government to micromanage the risk management of private funds.”

We expect the proposal to receive significant feedback from private fund industry players, given both the proposed accelerated reporting and the proposed expanded disclosure requirements, some of which are fundamentally different from the reporting requirements. existing statements.

Proposed current event report

A major proposed reporting requirement would require large hedge fund advisers and private equity fund advisers to report key events in a “current report” in one working day after occurrence, with respect to qualifying hedge funds and private equity funds, respectively, including the following:

Large Hedge Fund Advisors/Eligible Hedge Funds


Proposed criteria

Extraordinary investment losses

  • A cumulative loss over a period of 10 rolling business days of 20% or more of the most recent net asset value

Some Margin Events

  • A cumulative increase in the total dollar value of margin or collateral provided by the reporting fund by more than 20% of the most recently reported net asset value of the reporting fund over a continuous period of 10 business days
  • A reporting fund defaults on a margin call resulting in a deficit that the reporting fund cannot cover
  • Fund declaring unable to meet a margin call, including in situations where there is a dispute over the amount or appropriateness of the margin call

Counterparty Defaults

  • A counterparty to the reporting fund
    1. fails to meet a margin call or make any other payment, on time and in the form required
    2. the amount involved is greater than 5% of the last reported net asset value of the reporting fund

Important changes in relationships with prime brokers

  • Changes to material trading limits or investment restrictions
  • Termination of a prime broker relationship

Changes in unencumbered cash

  • The value of unencumbered cash in the reporting fund declines by more than 20% of the last reported net asset value of the reporting fund over a period of 10 rolling trading days

Operations Events

  • A material disruption or impairment of the reporting fund’s key operations (including the reporting fund’s investment, trading, valuation, reporting and risk management)

Certain Events Associated with Redemptions

  • Redemption requests from the reporting fund equal to or greater than 50% of the last net asset value
  • The declaration fund is
    1. unable to pay redemption requests or
    2. suspended redemptions, and the suspension has been in place for more than five consecutive business days

Private equity funds


Proposed criteria

Executing an advisor-led secondary trade

  • Transaction initiated by the advisor who offers investors
    1. sell all or part of their holdings in the private fund or
    2. convert or exchange all or part of their holdings in the fund for holdings in another vehicle advised by the same adviser

Setting up a general partner or sponsor recovery

  • If the recovery exceeds a total amount equal to 10% of the total capital commitments of the reporting fund

Fund Investor Withdrawal Event

  • Removal of the Advisor or its Affiliate as General Partner of the Reporting Fund
  • Election to End the Reporting Fund’s Investment Period
  • Election to Terminate the Reporting Fund

More private equity fund advisers would be required to report more information

Another significant proposed change would reduce the threshold for reporting as a large private equity adviser from US$2 billion to US$1.5 billion of private equity fund assets under management, which would significantly increase the number of US private equity advisers required to provide information as large private investors. capital advisors. More detailed information would be required for each private fund advised by a major private equity adviser regarding

  • fund strategies (need to choose from a mutually exclusive list of strategies by percentage of capital deployed)
  • use of leverage and financing of portfolio companies
  • Controlled holding companies (CPCs) and CPC borrowings
  • finance investments at different levels of the capital structure of the same holding company
  • restructurings or recapitalizations of holding companies

More detailed reporting by leading liquidity fund advisors

Finally, the SEC is proposing to require large liquidity fund advisers (those managing at least US$1 billion of combined money market and liquidity fund assets) to report essentially the same information as funds. money market would report on Form N-MFP as they proposed to amend it in December 2021, including

  • operational information
  • asset and portfolio information
  • funding information
  • investor information
  • disposal of securities in the portfolio
  • weighted average maturity and weighted average life

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