On August 10, 2022, the Securities and Exchange Commission (SEC) proposed changes to Form PF, the confidential reporting form the SEC uses for certain SEC-registered investment advisers to private funds.
The press release reveals that the amendments are designed to enhance the ability of the Financial Stability Oversight Council (FSOC) to assess potential systemic risk within the private fund industry, as well as bolster the SEC’s regulatory oversight of private fund advisers. The Commodity Futures Trading Commission (CFTC) is currently considering proposing the amendments along with the SEC.
SEC Chair Gary Gensler said, “I am pleased to support the proposal because, if adopted, it would improve the quality of the information we receive from all Form PF filers, with a particular focus on large hedge fund advisers.” Gensler further added that this will help safeguard investors and maintain well-orderly and fair markets.
If adopted, the proposed amendments would:
The proposed amendments are generally designed to provide greater insight into private funds’ operations and strategies, assist in identifying trends, including those that could create systemic risk, improve data quality and comparability, and reduce reporting errors.
Outlined below is a brief breakdown of the proposed amendments:
The proposal would enhance how large hedge fund advisers (those with a net asset value of at least $500 million) report investment exposures, borrowing and counterparty exposure, market factor effects, currency exposure reporting, turnover, country and industry exposure, central clearing counterparty reporting, risk metrics, investment performance by strategy, portfolio correlation, portfolio liquidity, and financing liquidity to provide better insight into the operations and strategies of these funds and their advisers and improve data quality and comparability.
The proposal would require additional basic information about advisers and the private funds they advise including identifying information, assets under management, withdrawal and redemption rights, gross asset value and net asset value, inflows and outflows, base currency, borrowings and types of creditors, fair value hierarchy, beneficial ownership, and fund performance to provide greater insight into private funds’ operations and strategies, assist in identifying trends, including those that could create systemic risk, improve data quality and comparability, and reduce reporting errors.
The proposal would remove duplicative questions and require more detailed information about hedge fund investment strategies, counterparty exposures, and trading and clearing mechanisms. It would also provide greater insight into hedge funds’ operations and strategies, assist in identifying trends, and improve data quality and comparability.
The Fact Sheet released by the SEC noted, “Form PF allows advisers to report complex structures either in the aggregate or separately, as long as they do so consistently. The practice obscures risk profiles and makes comparisons of complex structures difficult. The proposal would require advisers to report each component fund separately in complex fund structures, such as master-feeder arrangements and parallel fund structures.”
The SEC Fact Sheet also noted, “Form PF currently requires large hedge fund advisers to report certain aggregated information about the hedge funds they advise. Such information can obscure the data about hedge funds, including by masking the directional exposures of individual funds. The proposal would remove the aggregate reporting requirement.”
Given the broad reach of the proposals as they currently stand, advisers must take the time to familiarize themselves with the proposed amendments and anticipate how the changes could affect their reporting requirements. Please reach out to a member of Sanne, an Apex Group company, to understand how the new proposal may affect fund regulatory reporting requirements.