SEC Adopts Amendments to Form PF for Private Equity Funds

By Donta Dismuke and Eric Mikkelson

On May 3, 2023, the Securities and Exchange Commission (SEC) voted to adopt certain amendments (Final Amendments) to Form PF reporting requirements. Form PF is a confidential, regulatory reporting form filed by SEC-registered investment advisers to private funds that assists with SEC oversight and investor protection.

The Final Amendments are meant to enhance the SEC’s and the Financial Stability Oversight Council’s ability to monitor and assess risks and bolster investor protection efforts related to private fund advisers by:

  1. Requiring quarterly event-based reporting for all private equity fund advisers upon the triggering of certain events.
  2. Imposing new current reporting requirements for large hedge fund advisers (defined as an adviser having at least $1.5 billion in regulatory assets under management) upon the triggering of certain events.
  3. Imposing new and amended Form PF questions for large private equity fund advisers (defined as an adviser having at least $2 billion in regulatory assets under management), including enhanced disclosure of fund investment strategies and use of leverage.
Quarterly Event Reporting for All Private Equity Fund Advisers

The Final Amendments will require all private equity fund advisers who are required to file a Form PF (generally, private equity fund advisers with at least $150 million in regulatory assets under management) to file an event report upon the occurrence of certain triggering events. This quarterly report must be filed within 60 days after the end of the relevant quarter. The applicable triggering events are as follows:

  • Adviser-Led Secondary Transactions: Any transaction initiated by the adviser or any of its related persons that offers private fund investors the choice to: (1) sell all or a portion of their interests in the private fund; or (2) convert or exchange all or a portion of their interests in the private fund for interests in another vehicle advised by the adviser or any of its related persons. Reporting must include the adviser-led secondary transaction closing date and a brief description of the transaction.
  • Removal of General Partner or Election to Terminate the Investment Period: Where investors of a private equity fund have (1) removed the general partner of such fund, (2) elected to terminate the fund’s investment period, or (3) elected to terminate the fund. Reporting must include the effective date and a description of the removal or termination event.
Current Reporting for Large Hedge Fund Advisers

The Final Amendments will require large hedge fund advisers to file a current report as soon as practicable, but no later than 72 hours from the occurrence of any triggering events with respect to a qualifying hedge fund. Current reporting requirements are triggered upon the occurrence of any of the following events:

  • Extraordinary Investment Losses: A loss of 20% or more of a qualifying hedge fund’s reporting fund aggregate calculated value (reporting fund aggregate calculated value defined as every position in the reporting fund’s portfolio, including cash and cash equivalents, short positions, and any fund-level borrowing, with the most recent price or value applied to the position for purposes of managing the investment portfolio) over a rolling 10-business day period.
  • Significant Margin and Default Events: Significant (i.e., 20% or more) increases in margin, inability to meet a margin call, margin default, and default of a counterparty.
  • Prime Broker Relationship Terminated or Materially Restricted: The termination or material restriction of a reporting fund’s relationship with a prime broker.
  • Operations Events: When an adviser or reporting fund experiences a “significant disruption or degradation” of the reporting fund’s “critical operations,” (referring to the operations necessary for (1) the investment, trading, valuation, reporting, and risk management of the reporting fund; or (2) the operation of the reporting fund in accordance with the federal securities laws and regulations) whether as a result of an event at the reporting fund, the adviser, or other service provider to the reporting fund.
  • Withdrawals and Redemptions Events: A current report will be required if the reporting fund receives cumulative requests for withdrawals or redemption greater than 50% of the reporting fund’s most recent net asset value (after netting against subscriptions or other contributions from investors) or any instance in which a reporting fund is either: (1) unable to pay redemption requests or (2) has suspended redemptions and the suspension lasts for more than five business days.

In a departure from the original version of the proposed amendments (proposal), the SEC did not adopt an amendment that would have required large hedge fund advisers to report a significant decline (i.e., more than 20%) in holdings of unencumbered cash.

Enhanced Reporting for Large Private Equity Fund Advisers

For large private equity fund advisers, the Final Amendments amend existing questions while also adding new questions to the Form PF. These modifications will require large private equity advisers to annually disclose information related to the following:

  • Information regarding General Partner and Limited Partner clawbacks.
    • A General Partner Clawback being an obligation of the General Partner or its related persons to return performance-based compensation to a fund, as required by the fund’s governing documents.
    • A Limited Partner Clawback being an obligation of a fund’s investors to return a distribution made by the fund to satisfy a liability, obligation or expense of the fund, as required by the fund’s governing documents, that is in excess of 10% of a fund’s aggregate capital commitments.
  • Investment strategies as listed and applicable in the Form PF and percent of capital deployed to each strategy.
  • Engagement in fund-level borrowing, and disclosing (1) information on each borrowing or other cash financing available to the fund, (2) the total dollar amount available, and (3) the average amount borrowed over the reporting period.
  • Details on the nature of any reported events of default.
  • The identity of any institutions providing bridge financing to any of the adviser’s controlled portfolio companies.
  • The greatest country exposures based on a percent of net asset value.
Compliance and Effective Dates

Currently, the SEC has noted that it is only adopting certain amendments from the proposal; however, it is still reviewing comments received in connection with its August 2022 Form PF Joint Proposing Release, which means additional amendments may be forthcoming.

The compliance dates for the Final Amendments are staggered. Amendments relating to the new current and quarterly event reporting requirements for large hedge fund advisers and private equity fund advisers become effective six months after the date of publication of the adopting release in the Federal Register and 12 months for amendments relating to the enhanced reporting requirements (annual) for large private equity fund advisers following publication in the Federal Register.

As outlined above, the SEC indicated that it will scrutinize the newly-disclosed Form PF events as a substantive matter. Filers of Form PF should, therefore, review their procedures and controls and implement enhanced processes to collect the new information in compliance with the Final Amendments.

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