SEC Commissioners Approve Proposal for Changes to Form PF

Holland & Knight LLP

Holland & Knight LLP

As anticipated in an earlier SECond Opinions post, the U.S. Securities and Exchange Commission (SEC) voted 3-1 today to approve proposed amendments to Form Private Fund (PF), a form the commission uses to collect data about hedge funds, private equity funds and other private funds. SEC Chair Gary Gensler, along with Commissioners Allison Herren Lee and Caroline Crenshaw, voted in favor of the proposal, while Commissioner Hester Peirce voted against it.1 The vote triggers the public comment period on the proposal and, if ultimately passed, the proposal would speed up the reporting period, require the disclosure of additional data and expand the scope of who must file Form PF.

The proposal includes three major changes to Form PF, including:

  • Near-Real-Time Disclosure of Certain Reporting Events. Under the proposal, large hedge fund advisers – those with at least $1.5 billion of assets under management (AUM) attributable to hedge funds – would be required to file current reports within one business day of the occurrence of one or more major reporting events, including certain extraordinary investment losses, significant margin and counterparty default events, material changes in prime broker relationships, changes in unencumbered cash, operations events, and events associated with withdrawals and redemptions. Also, advisers to private equity funds would be required to file reports within one business day upon the occurrence of certain reporting events, including the execution of adviser-led secondary transactions, implementation of general partner or limited partner clawbacks, removal of a fund's general partner, termination of a fund's investment period, or termination of a fund.
  • New Reporting Requirements for Large Private Equity Advisers. The proposal would lower the threshold for which private equity fund advisers have to file Form PF from $2 billion AUM to $1.5 billion. In addition, under the proposal, this expanded class of advisers would disclose more information regarding fund strategies, use of leverage and portfolio company financings, controlled portfolio companies (CPC) and CPC borrowings, fund investments in different levels of a single portfolio company's capital structure, and portfolio company restructurings or recapitalizations.
  • New Reporting Requirements for Large Liquidity Fund Advisers. Finally, the proposal would require large liquidity fund advisers – those with at least $1 billion in combined AUM attributable to liquidity funds and registered money market funds – to report substantially the same information that money market funds would report on Form N-MFP, which the commission also proposes amending.

The SEC's claimed rationale for these changes is that it and the Financial Stability Oversight Council need more timely information about certain events that may signal market distress to monitor systemic risk, bolster the commission's regulatory oversight of private fund advisers and enhance investor protection efforts. Lee echoed these themes in her public statement following the meeting. The SEC believes the changes are necessary in light of the significant growth and complexity of private funds in the last 10 years, since Form PF was adopted initially in 2011 in the wake of the 2008 financial crisis, and due to recent market events, including market turmoil surrounding COVID-19 in March 2020 and market volatility in January 2021.

At the open meeting, Peirce, in voting against the proposal, explained that she believed the SEC's desire for more data was borne out of curiosity – not necessity – and that the proposed amendments to Form PF would only serve the purpose of providing the commission an opportunity to micromanage private fund advisers. Later, in a written statement outlining her objections, Peirce noted that the proposal seeks to inappropriately extend Form PF's reach, noting that "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." Jessica Wachter, chief economist and director of the Division of Economic and Risk Analysis, acknowledged during the open meeting that increased reporting requirements likely would increase costs for private fund advisers, which she expected would be passed on to investors.

In a statement issued after the meeting, Gensler noted that he has asked SEC staff to work jointly with the Commodity Futures Trading Commission to consider whether to amend the joint portions of Form PF, so additional proposed changes may be forthcoming.

The proposal will be published in its entirety on the SEC's website and in the Federal Register. The public comment period will open on publication and remain open for 30 days. The SECond Opinions Blog will monitor the public comments and continue to provide important updates.


1 Commissioner Elad Roisman stepped down last week.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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