Amend Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds, including those that also are registered with the CFTC as a commodity pool operator (CPO) or commodity trading adviser (CTA).
Aims and Background
Provides SEC, CFTC, FSOC with confidential data on private funds strategy, operations.
Used to monitor, assess systemic risk, in exams, investigations and investor protection
Since adoption of Form PF, the value of private fund net assets has more than doubled.
Cited evolving business practice, fund complexity, investment strategies and exposure.
Follows SEC Feb. 2022 prior proposal to enhance private fund reporting, see #127517.
Experience with Form PF data has identified potential ways to improve quality of data.
Changes designed to provide greater insight into private funds’ operations, strategies.
Changes to assist in identifying trends, including those that could create systemic risk.
Amendments to form improve data quality and comparability, reduce reporting errors.
Large Adviser Reporting
Proposals enhance reporting by large hedge fund advisers on Qualifying hedge funds.
Qualifying hedge funds include those with a net asset value of at least $500 million.
Enhance how large IAs report investment exposure, borrowing, counterparty exposure.
Report on market factor effect, turnover, exposures to currency, country and industry.
Additionally data on central clearing counterparty reporting, risk metrics; investment performance by strategy; portfolio correlation, portfolio liquidity, financing liquidity.
Basic Information on Adviser, Funds
Also enhance reporting on basic information about advisers, private funds they advise.
Require advisers to report additional data about themselves and their private funds.
Data including identifying information; assets under management; fund performance.
Withdrawal, redemption rights; gross asset value, net asset value; inflow and outflow.
Base currency; borrowings, types of creditors; fair value hierarchy, beneficial owner.
Enhanced Hedge Fund Reporting
Remove duplicative questions and require more detailed information about hedge fund investment strategies, counterparty exposures, and trading and clearing mechanisms.
Complex Structures Reporting
Amendments proposed to be made regarding how IAs report on complex structures.
Currently, IAs report complex structures either aggregate or separately, but consistent.
Noted practice obscures risk profile, makes comparisons of complex structures difficult.
Proposal would require advisers to report separately each component fund in complex fund structures, such as for master-feeder arrangements and parallel fund structures.
Aggregate Reporting
Aggregate reporting requirement for large hedge fund advisers would be removed.
Form PF currently requires large hedge fund IAs to report certain aggregated data.
Information can obscure hedge fund data, mask individual fund directional exposures.
Temporary Hardship Exemption
An adviser may request a temporary hardship exemption to the SEC, if it encounters unanticipated technical difficulties that prevent it from making timely electronic filing.
Hardship exemption extends the deadline for electronic filing, for seven business days.
To request a temporary hardship exemption, adviser must file a request on Form PF.
Proposed rule would amend how advisers file temporary hardship exemption request
Amended Instruction 14, allows advisers to request hardship exemption electronically.
Instruction 18 amended based on recent CFTC changes to Form CPOPQR, see #75832.
Changes re EEA, G-10 Definition
Revised EEA, defined as European economic area, and G10, defined as Group of ten.
Removed outdated country compositions; added instruction that if composition of EEA/ G10 changes after effective date of proposal, use composition as of data report date.
Supporting Remarks
Gensler described Jan. 2022 proposal to SEC-only section in support of joint proposal.
Believes amendments would bring greater capital market visibility, protect investors.
Lizarraga noted two specific areas of proposal where public feedback will be critical.
First, enhancing data collection on private funds' use of trading vehicles for risk clarity.
Second, the requirement for all private fund advisers to report whether funds provide investors with withdrawal or redemption rights, and if they do, then how often.
Critical to understanding private funds' susceptibility to stress during market volatility.
Opposing Remarks
Commissioner Peirce said had called for Form PF changes, however not this proposal.
Said amendments would add nice to know data, rather than need to know questions.
Does not support due to overreach, why data is needed/plans for use not answered.
Stretches very limited data collection tool, beyond intended purpose, and too granular.
Said that private fund investors are capable of making their own risk assessments.
Questioned whether commission can protect the data it collects, citing cybersecurity.
Consultation
SEC and CFTC requested comment on proposed rules, and a number of alternatives.
Alternatives including if certain possible proposal changes should apply to Form ADV.
Comments due later of 30 days after publication in federal register or Oct. 11, 2022.
Aug. 10, 2022 SEC Commissioner Remarks
On Aug. 10, 2022, SEC Commissioner Mark Uyeda issued statement, saying that the SEC fails to consider the cumulative costs to private fund advisers of this proposal.
Proposal's 60-day comment period is too short for thorough assessment of its costs.
Effects of cumulative costs will predominantly fall on smaller private fund advisers.
Small pension funds, other cost-sensitive investors may be foreclosed from investing in private funds; proposal further blurs line between regulation of public, private funds.
On Aug. 10, 2022, SEC Commissioner Crenshaw issued a statement, noting that the proposal would improve quality and consistency of data from private fund advisers.
Private fund industry has changed dramatically in decade since Form PF 1st proposed.
Value of net assets reported more than doubled; more investor funds are flowing into emerging spaces where SEC observability is much more limited than in public markets.
Aug. 10, 2022 SEC Johnson Remarks
On Aug. 10, 2022, SEC commissioner Johnson supported the proposal for comment.
Supported commission's endeavor to build on data collection points that need clarity.
Also, to propose revisions in response to changes in financial markets, and market participants, regulators’ experience with Form PF as a tool for gathering information.
Described how private funds have adopted new practices and investment strategies.
Further, appetite for investing in non-traditional assets; revisions aim to adapt these.
Important to hear concerns on reporting costs, challenges, particularly smaller entities.
Sep. 1, 2022 SEC, CFTC Fed Reg Filing
On Sep. 1, 2022, CFTC, SEC published proposal in federal register, comment Oct. 11.
Sep. 7, 2022 SEC, CFTC Fed Reg Correction
On Sep. 7, 2022, SEC, CFTC released correction to Sep. 1 federal register proposal.
The correction is technical and instructional in nature to p. 53900 of Sep. 1 register.
