It appears that the SEC is following through on its promise to crack down on private markets, rolling out its first significant rule changes for private funds. Earlier this month, the Commission adopted new Form PF changes that will affect all private funds required to file the form. As of today, most firms are either filing the form quarterly or annually, depending on asset size. The filing requirements will change under the new amendments. Specifically, private funds will have additional reporting requirements based upon certain key events, and the type and frequency of the filing will differ for private equity funds and hedge funds.
New Form PF Reporting
- Large hedge fund advisers with $1.5 billion or more in assets under management.
- All SEC registered private equity fund managers; with different reporting for large private equity fund managers with at least $2 billion or more in assets under management.
New Criteria for Reporting
The biggest lift for private funds will be the new event reporting which will require firms to file a new Form PF amendment within 72 hours of a specific occurrence. New Sections 5 and 6 of the form have been created for this purpose.
Large hedge fund advisers will have to file a Form PF amendment under new Section 5 within 72 hours of:
- Extraordinary investment losses suffered on any business day that the 10-business-day holding period return of a fund is less than or equal to 20% of the fund’s aggregate value.
- Significant margin or collateral increases that create a margin or collateral value difference (over a rolling 10-business-day value of the reporting fund) greater than or equal to 20% of the average daily aggregate value of the fund during the period.
- Any notice of margin default or inability to meet a margin call or collateral call.
- Any counterparty default where the default amount is greater than 5% of the fund’s aggregate value.
- Prime broker terminations or material restrictions.
- Material operations events that affect critical operations of the fund, whether internal or external (service provider event); such event could be an investment, trading, valuation, risk, or compliance/regulatory event.
- Cumulative withdrawals and redemptions of a fund equal to more than 50% of the most recent NAV.
- The inability to satisfy all redemptions of a fund or the suspension of redemptions occurs for more than 5 consecutive business days.
ALL private equity fund advisers will have to file a Form PF amendment under new Section 6 within 60 calendar days of the quarter end for:
- Adviser-led secondary transactions closed during the quarter.
- General partner removal, termination of an investment period, or termination of a fund as defined as a “removal event” in fund governing documents.
Large private equity advisers will have new annual reporting requirements under Section 4 of Form PF:
- Any general partner or limited partner clawback that occurred during the reporting period.
- Additional fund strategy information
- Use of leverage and financing
- Investment exposures and concentration
The additional reporting for large private equity advisers will be accessible by the Financial Stability Oversight Council (FSOC) so it can use the data to identify potential systemic risk to the economy as posed by large private equity advisers. The FSOC will use this data to determine if any specific private equity advisers should be deemed “systemically important.”
There are two different compliance dates for the new form filing. The current reporting requirements for specific event reporting under new Sections 5 and 6 will be required as of six months from the date the adopted rule is filed in the Federal Register. This will most likely coincide with the year-end 2023. The remaining new requirements under Section 4 will be effective within 1 year of the Federal Register filing, which means that most annual filers will not be affected in 2024, but the quarterly filers will be filing the new form as of June 30, 2024.
With the spring conference season well underway, several Commission members have been speaking about the recent SEC proposals. One to be aware of is the proposed Private Funds Rule, which may also be close to adoption this year based upon recent Staff speeches. The Private Funds Rule will include new requirements for conflicts of interest, investor reporting, and fund audits.