SEC Proposes Amendments to Form PF Reporting

On January 26, 2022, in a 3-1 vote, the U.S. Securities and Exchange Commission proposed amendments to Form PF, the form used by registered investment advisers to report information about the private funds they manage (the Proposing Release). The proposed amendments would change the reporting obligations of large hedge fund advisers, private equity fund advisers, and large liquidity fund advisers by

• imposing new expedited “current reporting” requirements for qualifying hedge funds by large hedge fund advisers and all private equity funds by private equity fund advisers
• increasing the number of advisers subject to the “large private equity adviser” reporting requirements by decreasing the threshold of private equity assets under management for that designation from US$2 billion to US$1.5 billion
• expanding the scope of information required to be reported for private equity funds by large private equity fund advisers
• expanding the scope of information required to be reported for liquidity funds by large liquidity fund advisers

Reporting by registered investment advisers for funds designated as real estate, securitized asset, or venture capital funds on Form PF would not be changed under the proposed amendments.

Our Take

Last week’s proposed amendments were the first step in a rulemaking process. Despite the significant changes proposed, the public comment period for this proposal is only 30 days following publication in the Federal Register (which has not occurred as of the date of this alert but will likely occur imminently). Once the comment period has closed, the SEC will review those comments and then publish a final rule. This rulemaking process takes several months.

The SEC likely will have to address substantial public comments concerning whether the proposed amendments are consistent with, or different from, the intent and purpose of Form PF — a topic of debate within the SEC itself. The SEC’s stated purpose for the proposed amendments is that the additional information provided by advisers on Form PF would improve the SEC’s understanding of the private fund industry and advance its ability to protect investors. In the Proposing Release, the SEC staff notes that the proposed amendments would not change the confidential, nonpublic status of information provided by advisers to the SEC on Form PF but reiterates that the SEC may “use Form PF information in an enforcement action and to assess potential systematic risk.” Chairman Gary Gensler notes in his accompanying statement his view that these changes are consistent with the original intent of the SEC in adopting Form PF. In his statement accompanying the Proposed Release, Chairman Gensler expresses his support for the proposed changes, asserting that a primary purpose of Form PF reporting when it was adopted in 2011 was to shed “light on a growing part of the financial sector that was not transparent to regulators: … private funds.” In contrast, Commissioner Hester Peirce in her dissenting statement characterizes the changes as representing “a fundamental shift in the Form PF’s scope and purpose.” She also expresses concern that “requiring almost immediate reporting of localized events would distend Form PF into a tool for government to micromanage private fund risk management.”

We expect the proposal to receive significant comments from private fund industry participants given both the proposed expedited reporting and the proposed expanded disclosure obligations, some of which are fundamentally different from existing reporting obligations.

Proposed Current Event Reporting

A significant proposed reporting requirement would require large hedge fund advisers and private equity fund advisers to report key events on a “current report” within one business day after occurrence, with respect to qualifying hedge funds and private equity funds, respectively, including the following:

More Private Equity Fund Advisers Would Be Required to Report More Information

Another significant proposed change would reduce the threshold for reporting as a large private equity adviser from US$2 billion to US$1.5 billion in private equity fund assets under management, which substantially increases the number of the U.S. private equity advisers required to provide information as large private equity advisers. More detailed information would be required for each private fund advised by a large private equity adviser regarding

• fund strategies (required to choose from a mutually exclusive list of strategies by percent of deployed capital)
• use of leverage and portfolio company financings
• controlled portfolio companies (CPC) and CPC borrowings
• fund investments in different levels of a single portfolio company’s capital structure
• portfolio company restructurings or recapitalizations

More Detailed Reporting by Large Liquidity Fund Advisers

Finally, the SEC is proposing to require large liquidity fund advisers (those advisers with at least US$1 billion in combined money market and liquidity fund assets under management) to report substantially the same information money market funds would report on Form N-MFP as it proposed to amend it in December 2021, including

• operational information
• assets and portfolio information
• financing information
• investor information
• disposition of portfolio securities
• weighted average maturity and weighted average life