An Overview of the SEC Proposed Changes to Form PF

On January 26, 2022, in a 3-1 vote, the U.S. Securities and Exchange Commission (SEC) proposed amendments to Form PF. If implemented, the proposed amendments will change the reporting obligations of large hedge fund advisers, private equity fund advisers, and large liquidity fund advisers. The scope change impacts the amount of information reported, adds “current reporting” requirements and decreases the threshold of reporting from US$2 billion to US$1.5 billion private equity assets under management. It is of note that the reporting by registered investment advisers for real estate, securitized asset, or venture capital funds on Form PF are not changed under the proposed amendments.
The proposed changes are significant in that large hedge fund advisers and all advisers to private equity funds would have one business day to report to the Commission the particulars surrounding certain “key events”. The “key events” include: extraordinary investment losses; significant margin and default events; and large withdrawals and redemptions for large hedge fund advisers; and, in the case of private fund advisers, the execution of an adviser-led secondary transaction, implementation of general or limited partner clawbacks, and the removal of a fund’s general partner.

Examples of the “key events” rules proposed:

• A cumulative loss over a rolling 10-business-day period of 20% or more of most recent Net Asset Value (NAV)

• A cumulative increase in the total dollar value of margin or collateral posted by the reporting fund of more than 20% of the reporting fund’s most recently reported NAV over a rolling 10-business-day period
• A 5% move in the NAV of the fund due to a counterparty to the reporting fund not meeting a margin call or failing to make any other payment
• Decline in the fund’s unencumbered cash by more than 20% of the reporting fund’s most recently reported NAV over a rolling 10-trading-day period
• Requests for redemptions equal to or greater than 50% of the most recent NAV
• Suspension in place for more than five consecutive business days
• A clawback is in excess of an aggregate amount equal to 10% of the reporting fund’s aggregate capital commitments

Rulemaking for changes to Form PF

The public comment period for the proposal is only 30 days following publication in the Federal Register. Once the comment period has closed, comments will be reviewed by the SEC and rulemaking will then occur. This rulemaking process takes several months. It is also unclear at this juncture whether the changes will even go ahead. There are fundamental objections being raised with regards to proposed Form PF changes because the proposal represents a fundamental shift in Form PF’s scope and purpose. The proposals to reduce the reporting threshold from the current $2 billion to $1.5 billion private equity assets under management is also questioned. It has been argued that reducing the threshold seems to fly in the face of the Commission’s thinking in 2011, when it was said that “[t]hese thresholds are designed so that the group of Large Private Fund Advisers filing Form PF will be relatively small in number, but represent a substantial portion of the assets of their respective industries.” Changing the threshold is seen as a good idea in the main: but it is argued that the change should be to increase it, not reduce it. In light of these arguments and fundamental objections it remains to be seen if the proposed changes of the 26 January 2022 will everbe implemented at all.