On January 26, 2022, the US Securities and Exchange Commission (SEC) proposed amendments to Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds (the Proposal).1 The Proposal aims to expand the frequency and volume of reporting by private fund advisers2, which the SEC believes will bolster the ability of the Financial Stability Oversight Council (FSOC) to monitor for systemic risk and enhance investor protection efforts. If adopted, the Proposal would change the current reporting obligations to:
- Require large hedge fund advisers and advisers to private equity funds to report the occurrence of certain key events / triggers within one business day of the event;
- Decrease the reporting threshold for large private equity advisers from $2 billion to $1.5 billion in private equity fund assets under management and require additional reporting of date relating to the private funds they advise; and
- Revise the way large liquidity fund advisers report certain assets and operational, portfolio, financing, and investor information.
Form PF requires private fund advisers to report certain date relating to their regulatory assets under management (RAUM) to FSOC. Only SEC-registered advisers with at least $150 million in private fund RAUM, must file Form PF. These private fund advisers are further divided into two broad groups - large advisers and small advisers.
The amount of information reported and the frequency of reporting depends on the group in which a particular adviser falls.
Shorter reporting period
Currently, Form PF is filed either on a quarterly or annual basis, depending on the size and type of private fund adviser. The following chart provides the current Form PF filling requirements for large hedge fund, private equity fund, and liquidity fund advisers:
In addition to the existing reporting requirements, the proposed amendments would require large hedge fund advisers and all private equity advisers to file reports within one day of the occurrence of certain “reporting events.” The following chart shows the types of reporting events, which differ for hedge funds and private fund adviser.
Decreased reporting threshold for private equity advisers
As shown in the table above, currently, a “large adviser” category includes advisers with at least $2 billion in RAUM attributable to private equity funds (as of the last day of its most recent completed fiscal year). The proposed amendments would decrease the reporting threshold for large private equity advisers from $2 billion to $1.5 billion, in RAUM attributable to private equity funds, which will lead to a higher number of private equity advisers falling under the large private equity advisers category. The SEC cited industry growth and an increase in the number of advisers below the current threshold as a rationale for reducing the threshold. According to the SEC, the reduced threshold will enable it to receive Form PFreports from roughly the same proportion of the US private equity industry (based on committed capital) as when Form PF was initially adopted.
Additional disclosures on fund activities
The Proposal seeks to expand the list of information to be gathered from large private equity advisers. Such additional information would include:
- Investment strategies and percent of deployed capital to each of those strategies;
- Portfolio company restructuring and recapitalization;
- Fund-level borrowings and leverage;
- Different funds’ investments in different levels of a single portfolio company’s capital structure;
- Financing or credit provided to portfolio companies by the adviser and its relate persons;
- Floating rate borrowings od controlled portfolio companies (CPCs) and the number of CPCs owned by a reporting fund;
- Bridge financing and events of default; and
- Geographical breakdown of investments by private equity fund advisers.
Additionally, the Proposal would require liquidity fund managers to report information similar to the information that money market funds report on Form N-MFP, including: (i) operational information regarding whether the fund seeks to maintain a stable price per share; (ii) asset and portfolio information; (iii) identity of fund’s creditors; (iv) investor information; and (v) disposition of portfolio securities.
If the proposed amendments to Form PF are adopted, a number of advisers could become subject to the Form PF reporting regime, and other advisers may face additional reporting obligations. Although the SEC does not expect a large increase in current reports, if the Proposal goes forward, many SEC-registered investment advisers to private funds will have to work closely with their legal counsel to revise their compliance policies and procedures in response to the new reporting requirements.
The text of the Proposal was published in the federal register in 02/17/2022 and the comment period will remain open until 03/21/2022.