On May 3, 2023, the SEC adopted significant amendments to Form PF, the confidential reporting form completed by registered private fund advisers for use by the SEC and the Financial Stability Oversight Council (the FSOC) to monitor systemic risks to the US financial system. The amendments will affect private fund advisers in three key ways:
- All private equity fund advisers will be required to file quarterly reports with the SEC with respect to (i) adviser-led secondary transactions, (ii) general partner removals and (iii) investor elections to terminate a fund or its investment period;
- Large private equity fund advisers will be required to provide enhanced annual reporting regarding certain activities of their private equity funds; and
- Large hedge fund advisers will be required to file a current report with the SEC regarding certain events that may indicate significant stress at a fund.
Quarterly Event Reporting for All Private Equity Fund Advisers
The Form PF amendments will require all private equity fund advisers to file an event report upon the occurrence of one or more trigger events within 60 days of each fiscal quarter end. Such reporting must include details of:
- any adviser-led secondary transaction executed during the reporting period, including the transaction closing date and a brief description of the transaction; and
- any investor election to remove a fund’s general partner or to terminate a fund’s investment period or a fund, including the effective date and a description of the applicable removal or termination event.
Such reporting will not be required for any quarters where triggering events did not occur.
Enhanced Reporting for Large Private Equity Fund Advisers
The amendments will add new questions to, and amend certain existing questions contained in, Form PF for large private equity fund advisers. Such changes are designed to (i) improve FSOC’s ability to monitor systemic risk and FSOC’s and the SEC’s ability to evaluate material changes in market trends at the reporting funds and (ii) enhance the SEC’s understanding of certain practices of private equity fund advisers. Information solicited by these additional questions includes:
- the implementation of (i) any general partner clawback or (ii) limited partner clawback(s) in excess of an amount equal to 10% of a fund’s aggregate capital commitments, as well as the effective date of, and reason for, such clawback(s);
- the percentage of an adviser’s deployed capital dedicated to specific private equity fund investment strategies;
- whether a fund engages in fund-level borrowing, and, if so, (i) information on each borrowing or other cash financing available to the fund, (ii) the total dollar amount available, and (iii) the average amount borrowed over the reporting period;
- the nature of any reported events of default;
- the identity of any institutions providing bridge financing to any of the adviser’s controlled portfolio companies; and
- the geographical breakdown of investments by private equity funds.
Current Reporting for Large Hedge Fund Advisers
Finally, the amendments to Form PF will require large hedge fund advisers to file a current report as soon as practicable, but no later than 72 hours from the occurrence of one or more trigger events. Such requirements are designed to “provide important, current information to the Commission and FSOC to facilitate timely assessment of the causes of the current reporting event, the potential impact on investors and the financial system, and any potential regulatory responses.” Examples of trigger events include:
- Extraordinary Investment Losses: Large hedge fund advisers will be required to provide a current report regarding any advised hedge fund that experiences extraordinary losses (equal to or greater than 20% of such fund’s value within a rolling 10-business-day period);
- Significant Margin and Default Events: Current reporting will be required for significant margin and default events that occur at qualifying hedge funds advised by large hedge fund advisers or at their counterparties that are indicative of potential fund and market stress. Such events include significant (i.e., 20% or more) increases in margin, inability to meet a margin call, margin default, and default of a counterparty;
- Material Changes in Prime Broker Relationships: Large hedge fund advisers will be required to report the termination or material restriction of a reporting fund’s relationship with a prime broker;
- Operations Events: Current reporting will be required when a large hedge fund adviser or reporting fund experiences a “significant disruption or degradation” of the reporting fund’s “critical operations,” whether as a result of an event at the reporting fund, the adviser, or other service provider to the reporting fund; and
- Certain Events Associated with Redemptions: The amendments will require large hedge fund advisers to report any large withdrawal and redemption requests, inability to satisfy redemptions or withdrawals, and suspensions of redemptions or withdrawals.
In a departure from its January 2022 proposal, the SEC is not adopting an amendment requiring large hedge fund advisers to report a significant decline in holdings of unencumbered cash.
Compliance and Effective Dates
In its adopting release, the SEC noted that, at this time, it is only adopting certain amendments proposed in its January 2022 Form PF Proposing Release and is continuing to consider comments received in connection with its August 2022 Form PF Joint Proposing Release. In an effort to provide time for advisers to prepare to comply with the finalized amendments, the SEC structured the amendments’ effective dates and compliance dates to be the same. However, the compliance dates for the amendments will be staggered, with such date being six months for amendments relating to the new current and quarterly event reporting requirements for large hedge fund advisers and private equity fund advisers and 12 months for amendments relating to the enhanced reporting requirements for large private equity fund advisers, in each case following publication in the Federal Register.
- 1. The full text of the amendments’ adopting release can be found here and a related fact sheet can be found here. As under current rules, exempt reporting advisers will not be required to file Form PF as a result of the amendments.↵
- 2. A private equity fund adviser is any adviser having at least $150 million in regulatory assets under management attributable to private equity funds.↵
- 3. A large private equity adviser is any 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.↵
- 4. A large hedge fund adviser is any adviser having at least $1.5 billion in regulatory assets under management attributable to hedge funds as of the end of any month in the prior fiscal quarter.↵
- 5. Adviser-led secondary transactions include any transaction initiated by the adviser or any of its related persons that offers private fund investors the choice to: (i) sell all or a portion of their interests in the private fund; or (ii) convert or exchange all or a portion of their interests in the private fund for interests in another vehicle advised by the adviser or any of its related persons.↵
- 6. A “general partner clawback” is defined as any obligation of the general partner, its related persons or their respective owners or interest holders to restore or otherwise return performance-based compensation to the fund pursuant to the fund’s governing agreements. A “limited partner clawback” is defined as an obligation of a fund’s investors to return all or any portion of a distribution made by the fund to satisfy a liability, obligation or expense of the fund pursuant to the fund’s governing agreements.↵
- 7. A controlled portfolio company is any portfolio company that is controlled by the private equity fund, either alone or together with the private equity fund’s affiliates or other persons that are, as of the data reporting date, part of a club or consortium including the private equity fund.↵
- 8. The current report will require an adviser to report if the fund receives cumulative requests for withdrawals or redemptions exceeding 50% of the most recent net asset value (after netting against subscriptions or other contributions from investors received and contractually committed).↵
- 9. The full text of the August 2022 proposal can be found here and a related fact sheet can be found here. A collection of public comments received on the proposal can be found here.↵