Regulatory Reporting Recap: Form PF
Regulatory Reporting Recap: Form PF
An overview of the SEC’s proposed amendments
In January 2022, the U.S. Securities and Exchange Commission (SEC) announced the proposal of several amendments to Form PF that will impact private equity and hedge fund advisers. Form Private Fund (Form PF) is a SEC regulatory filing requirement that mandates private fund advisers to report regulatory assets under management (quarterly/annually) to the Financial Stability Oversight Council (FSOC). The form, which was first adopted in 2011 and became effective in 2012, was created to monitor and assess systemic risks to the U.S. financial system. Since 2012, the entire ecosystem has gone through a myriad of changes with many private equity and hedge funds added over the years.
New Current Reporting Requirements for Large Hedge Fund Advisers and All Private Equity Advisers:
The latest changes to Form PF would require large hedge fund advisers and private equity advisers to file a current report within one day after certain events that may signal “significant stress,” “potential systemic risk implications” or “potential areas of inquiry to prevent investor harm.”
The following are the events that will trigger current reporting:
- Extraordinary investment losses of 20% or more of net asset value;
- Margin events occurring in excess of 20% of margin requirements;
- Counterparty defaults of more than 5% of a fund’s net asset value;
- Material changes in prime broker relationships (including restrictions or limits on investments or trading, and termination of the relationship for default or breaches);
- Decline in unencumbered cash which is more than 20% of the net asset value;
- Events disrupting or degrading key operations events (which include investment, trading, valuation, risk management and regulatory compliance); and
- Certain events associated with redemptions (requests exceeding 50% of the net asset value or the inability to meet redemptions).
Large Private Equity Adviser Reporting:
Currently, a large private equity adviser manages $2 billion AUM. In the latest changes to Form PF, the SEC has revised the limit to $1.5 billion AUM. The SEC expects this change to increase the percentage of the U.S. private equity industry covered by Section 4 of Form PF from 67 percent to 75 percent based on committed capital, thus improving the SEC’s ability to monitor systemic risk. Furthermore, the proposal would amend Section 4 of Form PF.
The additional and amended questions would collect information on:
- Fund strategies;
- Any major restructuring/recapitalizations in the portfolio company;
- Investments of different funds at different levels of a single portfolio company’s capital structure;
- Fund-level borrowings;
- Financing or credit provided to portfolio companies by the adviser and its related persons;
- Floating rate borrowings of controlled portfolio companies (CPCs) and the number of CPCs owned by a reporting fund;
- In-depth information about events of default, bridge financing provided to CPCs and the geographic allocation of a fund’s investments.
New Reporting Requirements for Large Liquidity Fund Advisers:
The proposed updates to Form PF are designed to provide the SEC with a holistic picture of the short-term financing markets in which liquidity funds invest. If adopted, they would revise how large liquidity fund advisers disclose operational information and assets, as well as portfolio, financing and investor information. The proposed changes would bring large liquidity advisers in parity with money market funds in terms of reporting requirements.
Section 3 of Form PF would be amended to require large liquidity fund advisers to report:
- Whether the liquidity fund is maintaining a stable price per share and ascertaining the value of that;
- Cash separately from other categories of repo collateral when reporting assets and portfolio information;
- The total gross subscriptions and gross redemptions for each month of a fund’s reporting period;
- In-depth information about a fund’s securities and names of repo counterparty;
- Determining whether a creditor is based in the United States and, if so, whether it is a “U.S. depository institution”;
- Whether the fund is established as a cash management vehicle for other funds or accounts managed by the adviser or its affiliates;
- Important information about the fund’s beneficial owners;
- Information about the sold portfolio securities by the liquidity fund;
- The fund’s weighted average maturity and weighted average life calculated with a dollar-weighted average.
It is only a matter of time until these proposed updates to Form PF come into effect, which all alternative investment managers must comply with. Are your systems flexible enough to adapt?