On August 10, 2022, the SEC issued Release Number IA-6083 proposing to amend Form PF, a confidential reporting form required for certain SEC-registered investment advisors to private funds.
The amendments, which the Commodity Futures Trading Commission (CFTC) is considering jointly with the SEC, are designed to enhance the Financial Stability Oversight Council’s (FSOC) ability to assess systemic risk and bolster the SEC’s regulatory oversight of private fund advisers.
Proposal Overview
The proposal contains five Form PF amendments designed to provide greater insight into private funds’ operations and strategies and to:
- Assist in identifying trends, including those that could create systemic risk
- Improve data quality and comparability
- Reduce reporting errors
SEC Chair Gary Gensler commented that this proposal comes in response to the growth in the private fund industry, which grew by 150% as measured by the gross asset value, and evolved in terms of its business practices, complexity, and investment strategies.
He also noted if the amendments are to be adopted, it would improve the quality of the information the SEC receives from all Form PF filers, with particular focus on large hedge fund advisers.
Proposed Changes in Reporting
The proposed amendments would:
- Enhance reporting by large hedge fund advisers on qualifying hedge funds and on basic information about advisers and the private funds they advise
- Amend how advisers report complex investment structures
- Remove aggregate reporting for large hedge fund advisers
Reporting by Large Hedge Fund Advisers
The proposed amendment would enhance large hedge fund adviser reporting on qualifying hedge funds with a net asset value of at least $500 million, including how large hedge fund advisers report:
- Investment exposures
- Borrowing and counterparty exposure
- Market factor effects
- Currency exposure reporting
- Turnover
- Country and industry exposure
- Central clearing counterparty reporting
- Risk metrics
- Investment performance by strategy
- Portfolio correlation
- Portfolio liquidity
- Financing liquidity
Reporting on Basic Information
The proposal would require advisers to report additional information about themselves and their private funds, including:
- Identifying information
- Assets under management
- Withdrawal and redemption rights
- Gross asset value and net asset value
- Inflows and outflows
- Base currency
- Borrowings and types of creditors
- Fair value hierarchy
- Beneficial ownership
- Fund performance
Reporting Concerning Hedge Funds
Duplicative questions would be removed and more detailed information would be required about hedge fund investment strategies, counterparty exposures, and trading and clearing mechanisms.
Amend How Advisers Report Complex Structures
The proposed amendment would require advisers to report separately each component fund in complex fund structures, such as master-feeder arrangements and parallel fund structures.
Remove Aggregate Reporting for Large Hedge Fund Advisers
Form PF currently requires large hedge fund advisers to report certain aggregated information about the hedge funds they advise.
Such information can obscure the data about hedge funds, including by masking the directional exposures of individual funds. The proposed amendments would remove the aggregate reporting requirement.
Digital Assets on Form PF
The term digital asset as used in the proposed amendment indicates an asset issued or transferred using distributed ledger or blockchain technology. Digital assets include but aren’t limited to virtual currencies, coins, and tokens. These types of assets are commonly referred to as crypto assets.
The proposal is intended to agree with a recent SEC statement on digital assets and the SEC’s section of Form PF in the 2022 SEC Form PF Proposal.
Comment Dates
While initially listed on the SEC website on August 10, 2022, the proposed rules will be published on SEC.gov and in the Federal Register.
Per the SEC, any comments should be received on or before 60 days after issuance and publication on SEC.gov, or 30 days after publication in the Federal Register, whichever is later.
We’re Here to Help
For more information about how these proposed changes could affect your fund, please contact your Moss Adams professional.
You can find additional resources at our Financial Services Practice.