The SEC has proposed three amendments to Form Private Fund (Form PF), a confidential form used by registered investment advisers to report information about the hedge funds, private equity funds and other private funds they manage. The proposed amendments seek to require timely reporting of certain events for large hedge fund and private equity fund advisers, decrease the threshold for designation as a “large private equity adviser” from $2 billion to $1.5 billion of private equity assets under management (AUM), and expand reporting requirements for large private equity fund advisers and large liquidity fund advisers. The proposed amendments are designed to enhance the SEC’s and Financial Stability Oversight Council’s ability to monitor systemic risk and bolster the SEC’s regulatory oversight of private fund advisers and investor protection efforts.
New Current Event Reporting Requirement for Large Hedge Fund and Private Equity Fund Advisers
The most significant proposed changes to Form PF are additional new current reporting requirements. Large hedge fund advisers – those with at least $1.5 billion of AUM attributable to hedge funds – would be required to file current reports within one business day of the occurrence of one or more major reporting events, including certain extraordinary investment losses, certain margin events, counterparty defaults, material changes in prime broker relationships, changes in unencumbered cash, operations events and certain events associated with redemptions. Upon the occurrence of such an event, a large hedge fund adviser would file Section 5 of Form PF as a stand-alone filing. Additionally, private equity fund advisers would be required to file current reports within one business day of the occurrence of certain events, including fund investor removal events, implementation of a general partner or limited partner clawback, and the execution of an adviser-led secondary transaction. To report the occurrence of such an event, a private equity fund adviser would file Section 6 of Form PF as a stand-alone filing. Large hedge fund advisers and private equity fund advisers alike would be able to provide additional information, in narrative format, to shed more light on the current reports.
Large Private Equity Fund Adviser Threshold Reduced
The proposal includes a reduction in the threshold for reporting as a large private equity fund adviser from $2 billion to $1.5 billion in AUM. When Form PF was originally adopted in 2011, the $2 billion threshold captured 75% of the U.S. private equity industry based on committed capital. A little over a decade later, this threshold only captures about 67% of the U.S. private equity industry. The SEC indicated in the proposal that the proposed reduction is designed to continue to capture 75% of the U.S. private equity industry based on committed capital and provide robust data for analysis to identify potential investor protection issues and monitor systemic risk. The SEC further noted that the proposed threshold strikes a balance between obtaining sufficient data from the private equity fund industry and minimizing the burden for smaller advisers.
Expanded Reporting Requirements
Private Equity Fund Advisers
In addition to lowering the threshold reporting requirements for private equity fund advisers, more detailed information would be required for each private fund advised by a large private equity fund adviser1 regarding
- portfolio company restructurings or recapitalizations,
- fund investments in different levels of a single portfolio company’s capital structure,
- controlled portfolio companies and CPC borrowings,
- use of leverage and portfolio company financings, and
- fund strategies.
Large Liquidity Fund Advisers
The proposal would revise how large liquidity fund advisers2 report operational information and assets as well as portfolio, financing and investor information. Moreover, the proposal would add a new item concerning the disposition of portfolio securities. The proposed amendments would bring Form PF in line with Form N-MFP and the categories the Board of Governors of the Federal Reserve System uses in its report and analysis.
“Digital Assets” Defined
Of note, the Form PF proposal defines a “digital asset” as an “asset that is issued and/or transferred using distributed ledger or blockchain technology (‘distributed ledger technology’), including but not limited to, so-called ‘virtual currencies,’ ‘coins,’ and ‘tokens.’” While the SEC has used this definition since 2019, this is the first time a regulator has formally included the definition in a rulemaking proposal.
Comment Deadline
Comments on the proposed amendments to Form PF are due to the SEC by March 21, 2022.
FOR MORE INFORMATION
For more information, please contact:
Cassandra W. Borchers
513.352.6632
Cassandra.Borchers@ThompsonHine.com
Tashia Love
614.469.3284
Latashia.Love@ThompsonHine.com
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1Any adviser having at least $2 billion in regulatory assets under management attributable to private equity funds as of the last day of the adviser’s most recently completed fiscal year. Under the proposal, the SEC would lower the threshold for large private equity advisers to $1.5 billion.
2 Any adviser managing a liquidity fund and having at least $1 billion in combined regulatory assets under management attributable to liquidity funds and registered money market funds as of the end of any month or prior fiscal quarter.
