SEC Continues Increased Scrutiny of Advisers to Private Funds, Adopts Amendments to Form PF

In May 2023, the Securities and Exchange Commission (SEC) adopted amendments to Form PF, the confidential reporting form required for SEC-registered investment advisers to private funds. The amendments expand existing reporting requirements for all registered private fund advisers and, for some advisers, require new enhanced disclosures and current reporting of certain events.

Form PF Requirements

  • Quarterly reporting of certain events for small registered private equity fund advisers.
  • Enhanced annual reporting for large private equity fund advisers.
  • Real-time disclosure obligations of certain events for large hedge fund advisers.

Existing Filing and Updating Requirements

Currently, Form PF must be filed by all registered private fund advisers. Form PF provides the SEC with confidential information on private fund advisers. Large private equity fund advisers ($2 billion or more in assets under management — and smaller registered private equity fund advisers are currently required to report annually on Form PF. Large hedge fund advisers (those with $1.5 billion or more in hedge fund assets under management) and large liquidity fund advisers (those with $1 billion or more in money market and liquidity fund assets under management) must make quarterly filings to update Form PF. Reflecting the SEC’s current view that it intends to increase scrutiny of material events involving private fund advisers and potential conflicts of interest, the amendments to Form PF impose new reporting obligations on registered private fund advisers.

Amendments to Form PF Requirements

All Private Equity Fund Advisers Subject to Quarterly Reporting of Certain Events: All registered private equity fund advisers (at least $150 million in regulatory assets under management attributable to private equity funds) will be required to amend Form PF on the Investment Adviser Reporting Depository, or IARD, to disclose if one or more of the following trigger events occur during an adviser’s fiscal quarter:

  1. Execution of an adviser-led secondary transaction; and
  2. An investor election to remove a fund’s general partner or terminate a fund or a fund’s investment period.

The report is due within 60 days after the end of the private equity adviser’s fiscal quarter. If a key event did not occur during a particular quarter, an adviser will not be required to file a report for that quarter. The new requirements impose a potential reporting obligation that must be assessed quarterly and, if triggered, filed with respect to the applicable fiscal quarter.

Large Private Equity Fund Advisers Subject to Certain Enhanced Annual Reporting: All large private equity fund advisers (at least $2 billion in assets under management attributable to private equity funds) must answer new and amended questions in their annual reports on Form PF with respect to:

  1. Any general partner or limited partner clawbacks that, in the aggregate, exceed 10% of a fund’s aggregate capital commitments;
  2. Investment strategies, by a percentage of deployed capital;
  3. Fund-level borrowing;
  4. Events of default;
  5. Bridge financing to controlled portfolio companies; and
  6. Geographic breakdown of investments.

These new or amended questions will require disclosure on Form PF only annually within ordinary deadlines.

New Current Reporting Requirements for Large Hedge Fund Advisers Subject to New Current (72-Hour) Reporting Requirements: All large hedge fund advisers (at least $1.5 billion in assets under management attributable to hedge funds) to a “Qualifying Hedge Fund” (those hedge funds with net asset value — individually or in combination with any feeder funds, parallel funds, and/or dependent parallel managed accounts — of at least $500 million) will be required to file a report with the SEC when their funds experience the following stress events:

  1. Extraordinary investment losses (equal to or greater than 20% of a fund’s aggregate calculated value over a rolling 10 business day period);
  2. Significant margin events and default events;
  3. A prime broker relationship being terminated or materially restricted;
  4. Operations events (significant disruption or degradation of the reporting fund’s critical operations); and
  5. Certain events associated with withdrawals and redemptions (large withdrawal and redemption requests, inability to satisfy withdrawals or redemptions, or suspensions of withdrawals or redemptions).

Large hedge fund advisers will be required to disclose stress events with the SEC on Form PF as soon as practicable but no later than 72 hours after the occurrence of a stress event.

Compliance Dates: The new reporting obligations — quarterly reporting of certain events by all private equity fund advisers and current reporting of stress events by large hedge fund advisors — will become effective on Dec. 11, 2023. The enhanced annual reporting obligations will become effective on June 11, 2024.

The adopting release for the amendments to Form PF is available here on the SEC’s website.

Anticipated SEC Rulemaking

Private fund advisers should also expect further SEC rulemaking that may impact their investor reporting obligations and internal governance and compliance practices.

For example, in February 2022, the SEC proposed a number of new or amended rules that are intended to protect investors. These rules have not been adopted and are, therefore, subject to change. They include proposed affirmative requirements to provide investors with statements on a quarterly basis, be audited at least once per year, and obtain fairness opinions in connection with adviser-led secondary transactions, as well as prohibitions of certain activities, such as affording preferential treatment to certain investors or borrowing from clients.

In August 2022, the SEC and the Commodities Future Trading Commission issued jointly proposed rules to amend Form PF further to require that more detailed information about private funds. These rules have also not been finalized.

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