On May 3, 2023, the U.S. Securities and Exchange Commission (SEC) adopted, by a vote of 3-2, amendments to Form PF (the "Amended Form"), the confidential reporting form for certain SEC-registered investment advisers to private funds. The Amended Form will require significantly more reporting from private fund advisers, including current reporting by large hedge fund advisers within 72 hours after the occurrence of certain specified events.1

The Amended Form addresses the first of two Form PF proposals that the SEC issued in 2022 (the "First Proposal), which proposed "current" reporting obligations within one business day for certain private fund advisers and decreasing the reporting threshold for large private equity fund advisers from $2 billion to $1.5 billion in private equity fund assets under management.2 The Amended Form does not address changes contained in the SEC's second Form PF proposal (the "Second Proposal"), which the SEC proposed jointly with the Commodity Futures Trading Commission (CFTC) and which included amendments designed to collect more detailed information to enable the SEC and CFTC to better assess systemic risk.3 The SEC did not signal an intent to adopt these two proposals simultaneously and, accordingly, it is perhaps not surprising that the SEC only adopted changes proposed in the First Proposal at this time. The SEC stated that it continues to consider comments received in connection with the Second Proposal and, thus, it is important for advisers to be aware that the SEC could still adopt that proposal at a later date.

The SEC set two separate compliance dates for the Amended Form. For new sections 5 and 6, the effective/compliance date is 180 days after the publication of the Amended Form in the Federal Register, which means that large hedge fund advisers could be subject to the new current reporting obligations as soon as the fourth quarter of this year. The compliance date for other aspects of the Amended Form is 365 days after the Amended Form's publication in the Federal Register. We summarize new key elements of the Amended Form, compared against the First Proposal, in the chart below.

First Proposal – Proposed Changes

Amended Form

Hedge Fund Current Reporting. The proposal would have added a new section 5 to Form PF to add current reporting requirements for large hedge fund advisers (advisers having at least $1.5 billion in regulatory assets under management attributable to hedge funds), which would have required filing reports within one business day of the occurrence of the following reporting events with respect to qualifying hedge funds:

  • Certain extraordinary investment losses (i.e., a loss of 20 percent or more of a fund's most recent net asset value);
  • Significant margin and counterparty default events;
  • Material changes in prime broker relationships;
  • Changes in unencumbered cash (e.g., a decline of 20 percent or more over a rolling 10-day period);
  • Operations events (including certain investment, compliance, and valuation issues); and
  • Events associated with withdrawals (e.g.,withdrawals exceeding 50 percent of the fund's recent net asset value) and the inability of a fund to satisfy redemptions, or suspensions of redemptions, for more than five consecutive business days.

Adopted, but with modifications. Instead of requiring the filing of current reports within one business day, the Amended Form will require large hedge fund advisers to report as soon as practicable upon, but no later than 72 hours after, the occurrence of certain specified events with respect to a qualifying hedge fund (i.e., a hedge fund with a net asset value of at least $500 million). The specified reporting events that will trigger this obligation in the Amended Form are generally the same as proposed, except that the changes to a hedge fund's unencumbered cash will no longer trigger a reporting event.4

Private Equity Current Reporting. The proposal would have added a new section 6 to Form PF to require advisers to private equity funds to file current reports within one business day of the occurrence of any one of the following reporting events:

  • Adviser-led secondary transactions;
  • General partner removals and investor elections to terminate a fund or its investment period; or
  • Implementation of general partner or limited partner clawbacks of 10 percent or more of a fund's aggregate capital commitments.

Adopted, but with modifications. The Amended Form will require quarterly reporting by private equity fund advisers, within 60 days after quarter end, for two of the proposed current reporting items:

  • Adviser-led secondary transactions and
  • General partner removals and investor elections to terminate a fund or its investment period.

Additionally, the Amended Form will require reporting by large private equity fund advisers with respect to general partner or limited partner clawbacks as proposed, except that reporting is required on an annual rather than current basis.

Large Private Equity Adviser Reporting.

  • The proposal would have reduced the threshold for reporting as a large private equity adviser from $2 billion to $1.5 billion in private equity fund assets under management.
  • The proposal would have amended section 4 of Form PF for large private equity advisers to require more information regarding fund strategies, use of leverage and portfolio company financings, controlled portfolio companies (CPCs),and CPC borrowings, fund investments in different levels of a single portfolio company's capital structure, and portfolio company restructurings or recapitalizations.

Partially adopted.

  • The SEC did not adopt a lower $1.5 billion reporting threshold for large private equity fund advisers for purposes of reporting in section 4. The Amended Form will retain the existing $2 billion threshold.
  • The Amended Form will add certain additional questions to section 4 as proposed, including questions regarding investment strategies, fund-level borrowings, events of default, bridge financing to CPCs, and geographic breakdowns of investments, but will not includethe proposed questions relating to restructuring/recapitalization of a portfolio company, investments in different levels of a single portfolio company's capital structure by related funds, financing of portfolio companies, floating rate borrowings of CPCs, or CPCs owned by private equity funds.

Large Liquidity Fund Adviser Reporting. The proposal would have required large liquidity fund advisers to report substantially the same information that money market funds report on Form N-MFP, as the SEC has proposed to amend it.

Not adopted at this time. However, the SEC noted that it is continuing to consider comments relating to this aspect of the proposal.

Second Proposal – Proposed Changes5

Amended Form

Enhanced Reporting for Large Hedge Fund Advisers on Qualifying Hedge Funds. The proposal would require large hedge fund advisers to report additional information on qualifying hedge funds (those with a net asset value of at least $500 million), including how large hedge fund advisers report: (i) investment exposures,(ii) borrowing and counterparty exposure, (iii) market factor effects, (iv) currency exposure reporting, (v) turnover, (vi) country and industry exposure, (vii) central clearing counterparty reporting,(viii) risk metrics, (ix) investment performance by strategy,(x) portfolio correlation, (xi) portfolio liquidity, and (xii) financing liquidity.

Not yet addressed.

Enhanced Reporting on Basic Information About Advisers and the Private Funds They Advise. The proposal wouldrequire private fund advisers to report additional information about themselves and their private funds in section 1 of the Form, including:(i) certain identifying information, (ii) assets under management, (iii) withdrawal and redemption rights, (iv) gross asset value and net asset value, inflows, and outflows, (v) base currency,(vi) borrowings and types of creditors, (vii) fair value hierarchy,(viii) beneficial ownership, and (ix) fund performance.

Not yet addressed.

Enhanced Reporting Concerning Hedge Funds. The proposalwould require large hedge fund advisers to provide more detailed information in section 2b of the Form about the investment strategies, counterparty exposures, and trading and clearing mechanisms of the hedge funds they advise.

Not yet addressed.

Amend How Advisers Report Complex Structures. The proposal would remove the requirement for large hedge fund advisers to aggregate reporting about the hedge funds they manage in section 2a of the Form.

Not yet addressed.


Footnotes

1. See Amendments to Form PF to Require Event Reporting for Large Hedge Fund Advisers and Private Equity Fund Advisers and to Amend Reporting Requirements for Large Private Equity Fund Advisers, SEC Rel. No. IA-6297 (May 3, 2023).

2. See Amendments to Form PF to Require Current Reporting and Amend Reporting, SEC Rel. No. IA-5950 (Jan. 26, 2022).

3. See Form PF; Reporting Requirements for All Filers and Large Hedge Fund Advisers, SEC Rel. No. IA-6083 (Aug. 10, 2022).

4. Notably, for the thresholds of certain of the reporting events, the Amended Form will reference changes in the reporting fund aggregate calculated value (RFACV) over a rolling 10-business-day period, instead of a fund's daily net asset value.

5. While the SEC continues to consider comments on the Second Proposal, as noted above, the comment period for this proposal closed in October 2022.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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