On January 26, 2022, the SEC proposed significant amendments to Form PF, the confidential[1] form completed by 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.[2]

If adopted, the proposal would impact private equity fund sponsors in two key ways:

Real-Time Reporting Requirements

In addition to the current annual filing mandate, the proposal would require all private equity fund advisers who file Form PF to provide reporting within one business day of certain “reporting events” including:

  • completion of an adviser-led secondary transaction[3];
  • implementation of a general partner or limited partner clawback[4];
  • removal of a fund’s general partner;
  • termination of a fund’s investment period; and
  • termination of a fund.

The proposed one business day reporting period is a significant departure from the current annual filing requirement for private equity fund advisers and according to the SEC was “… designed to allow the SEC and FSOC to receive more timely information about certain events that may signal distress at qualifying hedge funds and private equity funds or market instability.”

Lower Reporting Threshold and Enhanced Reporting Obligations for Large Private Equity Advisers

The proposal would (i) lower Form PF’s reporting threshold for “large” private equity advisers from $2 billion to $1.5 billion in private equity fund assets under management and (ii) add new questions for these advisers designed to enhance regulators’ understanding of certain business practices and amend certain existing questions to improve data collection. The new and revised questions would solicit information on the following topics:

  • types of fund strategies;
  • restructuring/recapitalization of portfolio companies;
  • investments in different levels of a single portfolio company’s capital structure by related funds[5];
  • fund-level borrowings;
  • whether the adviser or any of its affiliates provide financing to a portfolio company;
  • the percentage of the aggregate borrowings of a reporting fund’s controlled portfolio companies (CPCs) that is at a floating rate rather than a fixed rate;
  • how many CPCs a reporting fund owns; and
  • additional information on events of default, bridge financing to CPCs and geographic breakdown of investments.

Noting that the private fund industry has grown to a net asset value of over $11 trillion since the adoption of Form PF in 2011, SEC Chair Gary Gensler commented that the proposal would “…help federal regulators to assess systemic risk… [and] bolster the Commission’s oversight of private fund advisers and the protection of investors in those funds.” Gensler also noted that the proposed changes would assist the SEC and FSOC in bridging “significant information gaps” identified in the data currently collected on Form PF.

In a separate statement, SEC Commissioner Hester Peirce noted her objections to the proposal, stating “Congress did not conceive of Form PF to facilitate the Commission’s desire to inoculate well-heeled investors against downturns, losses, or fund failures. Today’s proposal disregards these facts and represents a fundamental shift in Form PF’s scope and purpose.”

Comments on the proposal are due within 30 days of its publication in the Federal Register.

Endnotes    (↵ returns to text)
  1. In the proposal, the SEC reiterated it does not intend to make public information reported on Form PF that is identifiable to any particular adviser or private fund.
  2. The full text of the proposal can be found here.
  3. The proposal defines an “adviser-led secondary transaction” as any transaction initiated by the adviser or any of its related persons that offers private fund investors the choice to: (1) sell all or a portion of their interests in the private fund; or (2) 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. The inclusion of adviser-led secondary transactions illustrates the SEC’s growing focus on them, primarily because of the potential conflicts of interest they present.
  4. The proposal defines a “general partner clawback” 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.
  5. The SEC noted that this practice creates conflicts of interest that could be important for it to monitor.