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SEC Approves Final Rule on Private Fund Systemic Risk Reporting
Practical Law Legal Update 1-509-7039 (Approx. 4 pages)
SEC Approves Final Rule on Private Fund Systemic Risk Reporting
by PLC Corporate & Securities
| Published on 27 Oct 2011 • USA (National/Federal) |
On October 26, 2011, the SEC approved a final rule requiring certain SEC-registered investment advisers to report information for use by the Financial Stability Oversight Council using new Form PF.
On October 26, 2011, the SEC voted to adopt new reporting rules to implement Sections 404 and 406 of the Dodd-Frank Act. As detailed in an SEC press release and fact sheet, the rules require investment advisers registered with the SEC which advise one or more private funds (such as hedge funds or private equity funds) to report information to the SEC using Form PF, a new reporting form. Along with the information provided by registered private advisers on Form ADV, Form PF will be used by the Financial Stability Oversight Council (FSOC) to monitor risk to the US financial system.
Under the new rules, only SEC-registered private advisers with at least $150 million in private fund assets under management must file Form PF. Within this group, private fund advisers are divided by size into the following two broad groups with different reporting requirements:
- Large private fund advisers. This includes any adviser with:
- $1 billion or more in liquidity and registered money market fund assets under management, which must file Form PF quarterly, within 60 days of the end of each fiscal quarter.
- $1.5 billion or more in hedge fund assets under management, which must file Form PF quarterly, within 15 days of the end of each fiscal quarter.
- $2 billion or more in private equity fund assets under management, which must file Form PF annually, within 120 days of the end of the fiscal year.
- These investment advisers must include more detailed information than smaller investment advisers. The reporting focuses on the following types of private funds that the investment adviser manages:
- Hedge Funds. Large hedge fund advisers must report on an aggregated basis (and not on a position-level basis) information regarding exposures and turnover by asset class and geographical concentration. In addition, for each managed hedge fund having a net asset value of at least $500 million, these advisers must report certain information relating to that fund's exposures, leverage, risk profile and liquidity;
- Liquidity Funds. Large liquidity fund advisers must provide information on the types of assets in each of their liquidity fund's portfolios, certain information relevant to the risk profiles of the funds and the extent to which a fund has a policy of complying with all or certain aspects of the Investment Company Act's principal rule concerning registered money market funds (Rule 2a-7); and
- Private equity funds. Large private equity fund advisers must respond to questions focusing primarily on the extent of leverage incurred by their funds' portfolio companies, the use of bridge financing and their funds' investments in financial institutions.
- Smaller private fund advisers. This includes all other private advisers that are not considered large private fund advisers. These investment advisers must file Form PF annually within 120 days of the end of the fiscal year and report only basic information regarding the private funds they advise. This includes information regarding size, leverage, credit providers, investor types and concentration and fund performance and, additionally for hedge funds, fund strategy, counterparty credit risk and use of trading and clearing mechanisms.
Most private fund advisers must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, ending on or after December 15, 2012. However, the following advisers must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, ending on or after June 15, 2012:
- Advisers with at least $5 billion in assets under management attributable to hedge funds.
- Liquidity fund advisers with at least $5 billion in combined assets under management attributable to liquidity funds and registered money market funds.
- Advisers with at least $5 billion in assets under management attributable to private equity funds.
Form PF is a joint effort of the SEC and the CFTC. Form PF must be approved by the CFTC as well and it is expected to vote on jointly adopting these reporting requirements within the next week. If approved by the CFTC, private fund advisers required to file Form PF and also registered with the CFTC as commodity pool operators or commodity trading advisers would also file Form PF to comply with certain reporting obligations that the CFTC may adopt in the future.
For more information on the Dodd-Frank Act provisions relating to US and non-US hedge funds and private equity funds and the FSOC, see Practice Notes, Summary of the Dodd-Frank Act: Private Equity and Hedge Funds and Summary of the Dodd-Frank Act: Regulation of Systemically Significant Financial Institutions.
For information on SEC and FSOC rulemaking activities implementing those provisions, including reporting under Form ADV, see Practice Note: Road Map to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010: Private Equity and Hedge Funds.