Asset management alert: SEC’s proposed amendments to Form PF

In remarks before the Asset Management Advisory Committee in November 2021, SEC Chairman Gary Gensler previewed several asset management related projects the Commission is planning to undertake in 2022, including a greater focus on private fund transparency. As the Chairman noted, “Private funds are growing, and today they’re worth about $22 trillion. That’s why I’ve asked staff how we can bring greater transparency to this market in order to foster competition and efficiency, within our authority. Moreover, I’ve asked staff for recommendations for the Commission’s consideration around enhanced reporting and disclosure through Form PF or other reforms.”

In late January 2022, the Commission proposed a series of amendments to the substance, form and timing of Form PF disclosures. The amendments are intended to expand the purview of the reporting framework, create more transparency, encourage more timely disclosure, and ultimately give the SEC and the Financial Stability Oversight Council (“FSOC”) a more complete view into the private fund market in order to better monitor systemic risk to the US financial system.

The SEC recommended Form PF amendments targeting the following areas:

• Requirements for new current reporting of certain events for large hedge fund advisers and advisers to private equity funds; and
• Revisions to reporting thresholds and requirements for large private equity advisers and large liquidity fund advisers.

What's next

Although the proposed amendments are substantial, the SEC has only provided a 30-day window for public comments (from the date that the proposal is published in the Federal Register). We believe there will be a significant number of comments to this amendment and expect that the final rule will take some time as the SEC considers feedback from the public.

The vote for this proposed amendment was 3-1, with the dissenting vote from Commissioner Hester Peirce. In her statement, she notes a “fundamental shift in Form PF’s scope and purpose… Before we seek additional information through Form PF, we must show what we have done with the information we already require and show that it is insufficient to allow FSOC to monitor for systemic risk. I do not think we have done that...We owe the public a clearer understanding of the objective or subjective calculus or metric we have in mind when we say that contem poraneous reports from advisers concerning one, or a handful of, key events are significant enough to justify this added reporting burden for hundreds of advisers.”

We anticipate further rule-making proposals from the Division of Investment Management to come in 2022 as indicated by Chairman Gensler in the February 4, 2022 meeting before the FSOC. “There’s $5 trillion in money market funds, nearly $7 trillion in open-end bond funds, and $9 trillion in gross assets under management in hedge funds. The nature, scale, and interconnectedness of these fund sectors, though, also pose issues for financial stability. This is not just based on financial economic theory, but also upon the practical lessons of the past. We’ve seen such risks emanate from these sectors during the 2008 financial crisis, at the start of the COVID crisis in March 2020, and in 1998, when the hedge fund Long-Term Capital Management failed… I think the Securities and Exchange Commission has a responsibility to help protect financial stability, which maps onto many parts of our statutes, but particularly onto the ‘orderly’ part of our mission. Thus, I’ve asked SEC staff to make recommendations for the Commission’s consideration with regard to bolstering the resiliency of each of these fund sectors.”

The information provided here is for general guidance only, and does not constitute the provision of tax advice, accounting services, investment advice, legal advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.