The Dodd-Frank Act provided the SEC with new authority, and directed it to use this authority to require registered investment advisers to maintain records and file reports regarding the hedge funds, private equity funds and other private funds they advise. The Commission implemented this aspect of the Dodd-Frank Act in 2011 when it adopted new Form PF that requires certain registered investment advisers that advise private funds to report information to the SEC.
While the primary aim of this provision was to create a source of data for the Financial Stability Oversight Council, or FSOC, to use in assessing systemic risk, the SEC is using the information to support its own regulatory programs, including examinations, investigations and investor protection efforts relating to private fund advisers. The Dodd-Frank Act also required that the SEC report annually to Congress on how it has used the data to monitor the markets for the protection of investors and the integrity of the markets. The SEC has released its the first annual report submitted to Congress to satisfy this obligation. This post is comprised of the executive summary of the report.
Due to the rolling compliance dates the SEC adopted for Form PF, the SEC has only recently received a complete set of initial filings. Commission staff has begun to assess the quality of the data collected — including evaluating the consistency of filer responses and differences in approaches or assumptions made by filers — and has used the data on occasion to obtain information regarding a specific or small number of private funds. In addition, a number of uses of the information have already been identified across various Commission Divisions and Offices. In particular, the Division of Economic and Risk Analysis has successfully incorporated Form PF data into its proprietary analytical tool; the Division of Investment Management’s Risk and Examinations Office is working to develop analytics using Form PF information that will allow it to monitor the risk-taking activities of investment advisers to private funds; and the Office of Compliance Inspections and Examinations anticipates using the information collected on Form PF in conducting pre-examination due diligence and in risk identification. In addition, the Commission staff intends to provide certain aggregated, non-proprietary Form PF data to the International Organization of Securities Commission (IOSCO) regarding large hedge funds so IOSCO has a more complete overview of the global hedge fund market for a report that will be shared with the Financial Stability Board. In the coming months the staff will continue to assess data quality, and will develop data analytics incorporating Form PF data to further the Commission’s mission.