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SEC Proposed Amendments to Form PF

The Securities and Exchange Commission (SEC) voted 3–1 in January 2022 to propose amendments to Form PF, as filed by registered investment advisors to private funds. The proposal was supported by Chair Gary Gensler and Commissioners Allison Herren Lee and Caroline A. Crenshaw.

The purpose of Form PF is to provide the Financial Stability Oversight Counsel (FSOC) with information to assess systemic risk and identify trends in the private fund industry. The industry has grown exponentially since the form’s adoption in 2011, with assets managed by private funds more than doubling to $11.7 trillion. With almost a decade of Form PF data, the SEC and FSOC identified areas where Form PF could be enhanced to provide additional information that would be beneficial.

The proposed amendments would make three changes to Form PF:

  1. Requiring current reporting of certain events for advisers to private equity funds and large hedge funds
  2. Decreasing the reporting threshold for large private equity advisers
  3. Requiring more in-depth information for reporting on large private equity funds and liquidity funds

As it stands, the SEC requires Form PF be filed within 60 days following an adviser’s quarter and/or year-end. This leaves a significant lag in reporting events that may impact the private fund industry. As noted by Commissioner Crenshaw in her statement published following the proposal, “It is much harder to effectively plan for or mitigate risks when the information we’re getting is already stale.” The proposed amendment would require large hedge fund advisers and private equity advisers to report certain events within just one business day, providing the SEC with timely information.

For large hedge fund advisers, these events include:

  • Extraordinary investment losses
  • Significant margin events
  • Counterparty defaults
  • Material changes in prime broker relationships
  • Changes in unencumbered cash
  • Operations events
  • Certain events associated with redemptions

For advisers to private equity funds, these events include:

  • Execution of adviser-led secondary transactions
  • Implementation of general partner or limited partner clawbacks
  • Removal of a fund’s general partner
  • Termination of a fund’s investment period
  • Termination of a fund

The current threshold for reporting as a large private equity adviser is $2 billion in net assets under management. The proposed amendments lower this threshold to $1.5 billion, which would increase the number of advisers subject to Form PF. The proposal would also amend Section 4 of Form PF for large private equity advisers to require more information on the following:

  • Fund strategies
  • Use of leverage and portfolio company financings
  • Controlled portfolio companies (CPCs) and CPC borrowings
  • Fund investments in different levels of a single portfolio company’s capital structure
  • Portfolio company restructurings or recapitalizations

Lastly, the proposed amendments would require large liquidity fund advisers to report essentially the same information money market funds would report on the amended Form N-MFP as proposed by the SEC on Dec. 15, 2021. Such information includes:

  • Operational information
  • Assets and portfolio information
  • Financing information
  • Investor information
  • Disposition of portfolio securities
  • Weighted average maturity and weighted average life

Once this proposal is published in the Federal Register, the public comment period will last 30 days. The SEC will review comments prior to publishing a final rule.

These potential changes, although they may present challenges for those that file Form PF, would allow for FSOC to be provided with information in a more timely manner and allow them to stay on top of identifying and assessing systemic risk and trends as they occur.

For a copy of the SEC’s press release and further details of the proposed amendments, please refer here

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