Enhanced disclosure requirements may be coming soon for hedge funds and private equity firms. U.S. Securities and Exchange (SEC) Commissioner Chair Gary Gensler said on Jan. 19, 2022, that the regulator will vote next week on whether to propose stricter disclosure requirements for hedge funds and other private funds. The proposal likely would include rule changes to Form Private Fund (PF), a form the commission uses to collect data about hedge, private equity and other private funds. While details of the proposal have not been released, Gensler indicated that it would include an increase in the frequency and details of Form PF disclosures.
Speaking during a virtual Q&A at the Exchequer Club in Washington, D.C., Gensler stated that the SEC will propose new rules in a variety of areas, including increased disclosures regarding corporate pay (such as pay-versus-performance metrics of its workforce) and to provide more transparency in trading U.S. treasuries. Gensler closed his speech by noting that he believes the SEC's focus on greater transparency in the private fund space will help "portfolio companies on the one hand, and the pensions and endowments that are investing in that space on the other."1
Gensler's comments are hardly surprising in light of two speeches he gave in 2021. In testimony in front of a House subcommittee, Gensler identified private funds – highlighting the significant growth in private equity and venture capital funds – as one of the five key capital trends going forward. Noting that investment advisers do not have a self-regulatory organization monitoring their activities, he stated that the SEC must "grow and evolve with the industry" and asked the staff for recommendations on "enhanced reporting and disclosure through Form ADV, Form PF, or possible other reforms." 2
Gensler also gave a speech in November at the Institutional Limited Partners Association Summit, where he highlighted how Congress brought private funds into the framework of the Investment Advisers Act of 1940 following the 2008 financial crisis and that it was time for the SEC to "bring more sunshine and competition to the private funds space." He emphasized the need for the agency to consider 1) greater transparency around fee arrangements and performance metrics; 2) a re-evaluation of side letter agreements; 3) staff consideration on the prohibition on certain conflicts and practices; and 4) "freshen[ing] up Form PF." Specifically, concerning Form PF, he stated the agency ought to consider whether "more granular or timelier information" in Form PF "would be useful…"3
If the commission proposes new rules, a public comment period will follow. The SECond Opinions Blog will continue to monitor the chair's and commissioners' statements and public comments and provide important updates.
Notes
1 See Gary Gensler, Prepared Remarks: Dynamic Regulation for a Dynamic Society Before the Exchequer Club of Washington, D.C., Jan. 19, 2022.
2 See Gary Gensler, Testimony Before the Subcommittee on Financial Services and General Government, U.S. House Appropriations Committee, May 26, 2021.
3 He also revealed that he had directed SEC staff to recommend ways the commission can help increase market efficiency via competition and transparency and noted that the SEC was working on potential joint rulemaking in coordination with the Commodity Futures Trading Commission, and with the Financial Stability Oversight Council, the U.S. Department of the Treasury and the Federal Reserve.
