Changes to Form PF

It’s been a decade since the SEC and FSOC pushed Form PF on to private funds. The SEC has decided it wants more data and has proposed an amendment to Form PF.

The big change is next day reporting for key events by Large Hedge Fund Advisers and Private Equity Funds

For large Hedge Funds:

certain extraordinary investment losses
significant margin and counterparty default events,
material changes in prime broker relationships,
changes in unencumbered cash,
operations events, and
events associated with withdrawals and redemptions

For Private Equity Funds:

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, or
termination of a fund.

The purpose is provide more timely information to the SEC and FSOC and presumably signal distress in the markets quicker than the current delayed reporting.

Commissioner Pierce opposed the changes. She does not think it will actually provide useful information for FSOC. She thinks it’s just a grab by the SEC to enhance enforcement activity and twist the form into micro-management by the SEC. In particular, the one-day period is an incredibly short term for a firm that will likely be focused on trying to resolve issues rather than regulatory reporting.

Chair Gensler raised the specter of Long Term Capital Management in 1998. He used this as the boogeyman for why the SEC needs such intensive and quick reporting.

Net assets managed by private funds rose to $11.7 trillion in the first quarter of last year from $5.3 trillion in 2013, SEC data show. There were 6,910 private equity funds with $1.60 trillion in gross assets in first quarter of 2013 and 15,584 funds with $4.71 trillion in gross assets in the fourth quarter of 2020.

The proposal would reduce the threshold that triggers reporting as a large private-equity adviser to $1.5 billion from $2 billion in assets under management. That would pull approximately 75% of private equity funds into the reporting regime.

The Form PF still has that clunky definition of a “hedge fund” that leaves fund managers with subscription credit facilities wondering if they might considered a hedge fund.

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