SEC Adopts Amendments to Enhance Private Fund Reporting

Following a corresponding consultation in February 2022, the U.S. Securities and Exchange Commission, SEC, has now published its final rule amendments to Statutory Instruments 17 CFR Parts 275 and 279 both relating to regulations under the Investment Advisers Act of 1940 to enhance the reporting requirements of large advisers to hedge funds and all fund advisers to private equity funds. The objective of the amendments is to enhance regulatory oversight of such funds and thus to assess systemic risks on time, if the funds experience any type of unusual stress.
To recall, in February 2022, the SEC proposed to
– reduce the reporting threshold for fund advisers for private equity funds from currently $2 billion to $1.5 billion funds under management to capture smaller ones as well;
– enhance Form PF (amendments to section 4) to require additional data to be reported by such fund advisers such as a fund’s strategy, its use of leverage and portfolio company financing, investments in difference levels of a single portfolio company’s capital structure, and others; and
– require fund advisers to file within one business day reports with the SEC, if certain events occur that may cause stress on the fund. For hedge funds, such events may include, but are not limited to extraordinary investment losses, counterparty defaults, certain margin events and investor redemptions. For private equity funds, such events may include certain secondary transactions, clawbacks, removal of a general partner, terminations of fund investment periods or of the funds altogether, to name a few.
In its final rule now, the SEC outlines the responses it has received to its consultation and the final rules as they will be implemented. It shall be noted in this context that the SEC will NOT proceed with certain proposed modifications, including its proposals
- to require the reporting of trigger events within a single business day by large hedge fund advisers, but instead the SEC will require such reporting within 72 hours from their occurrence. As far as equity fund advisers are concerned, the reporting of certain trigger events will have to be made within 60 days from an adviser’s fiscal quarter end, rather than within one business day;
- to lower the reporting threshold for private equity funds, as the SEC has conducted additional research on the issue and found that currently 73% of all private equity funds are captured by the $2 billion threshold vs. the 67% that was assumed at the issuance of the proposed rule amendments. Therefore, for the time being, this figure is close enough to the SEC’s objective to capture 75% of all private equity funds;
- to require the reporting of a „significant“ (more than 20%) decline in holdings of unencumbered cash within a rolling 10-business-day period, which was one of the proposed trigger events; and
- to require large liquidity funds to report additional information in Form PF.
Additional changes compared to the proposed modifications concern certain definitions, specific reporting fields, and the questions raised in the reporting form.
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As the summary above only briefly describes the upcoming reporting requirements (and changes thereto), please refer to the original document disclosed by the SEC for more detailed, comprehensive information.