SEC Boosts Private Fund Reporting Requirements

The Securities and Exchange Commission Wednesday adopted amendments to Form PF, the confidential reporting form for certain SEC-registered investment advisors to private funds.

“Private funds today are ever more interconnected with our broader capital markets,” SEC Chairman Gary Gensler said Wednesday. “They also nearly have tripled in size in the last decade. This makes visibility into these funds ever more important.”

Private funds managed by RIAs “hold approximately $21 trillion of gross assets, including $20 trillion reported on Form PF — nearly the size of the $23 trillion U.S. commercial banking sector,” Gensler said.

The final rule requires, for the first time, that large hedge fund and private equity fund advisors make current reports on certain events to the commission.

At present, advisors to private funds “are required to file only periodic reports with the Commission,” Gensler said. “Under the final rule, these new, more-timely reports — within 72 hours from large hedge fund advisers and quarterly from private equity fund advisers — will inform financial regulators on certain events that may indicate significant stress or otherwise signal for systemic risk and investor harm.”

For large hedge fund advisors, “current event reporting will include, among others, extraordinary investment losses, significant margin events, and counterparty defaults,” Gensler said.

Reporting events for large hedge fund advisors include “certain extraordinary investment losses, significant margin and default events, terminations or material restrictions of prime broker relationships, operations events, and events associated with withdrawals and redemptions,” according to the SEC.

While the additional time between a triggering event and the deadline for a Form PF filing is generally welcome, the move from one business day to ‘as soon as practicable, but ‘no later than 72 hours’ following the triggering event’ brings its own operational challenges and could in some cases be a shorter deadline than was first proposed.

Jennifer Wood, Global Head of Asset Management Regulation & Sound Practices at the Alternative Investment Management Association, raised concerns about the SEC’s final rule.

“Some triggering events will be difficult to pinpoint to a specific time from which the 72 hours will begin tolling and the lack of a deadline on a business day increases the likelihood of filing deadlines occurring out of regular business hours or over weekends,” Wood said. “This will create considerable compliance uncertainty for AIMA members, especially registered advisers outside of the U.S.”