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Form PF Changes and Its Impact on Private Fund Managers

By September 30, 2023No Comments

Reporting and Filing Requirements Expanded, Particularly for Large Private Fund Managers

On May 3, 2023, the U.S. Securities and Exchange Commission (SEC) announced some significant changes to the Form PF, the confidential reporting form created in 2011 as part of the Dodd-Frank Act that provides the SEC and the Financial Stability Oversight Council (FSOC) with important data and information about private funds. These amendments, some of which having a compliance date as soon as November 3, 2023 (as compared to others with a compliance date of May 3, 2024), will enhance the FSOC’s ability to assess systemic risk and to bolster the SEC’s oversight of private fund advisers and its investor protection efforts, which will have the biggest impact on large private fund managers[i].

The Silver Compliance team has put together the below guidance for private fund managers to use as the November deadline approaches, which aims to explain what these amendments mean and provide some tips for ensuring compliance programs meet the newly required regulatory standards, particularly in today’s heightened regulatory environment.

Understanding Exactly What Has Changed

According to the SEC, these amendments will require large private fund managers to file current reports upon the occurrence of certain reporting events that could indicate significant stress of a private fund or potential harm to investors in such funds. But what does that mean?

Reporting requirements are most burdensome for large hedge fund advisers, with reporting triggers including, but not limited to, certain extraordinary investment losses, significant margin and default events, terminations or material restrictions of prime broker relationships, operations events and events associated with withdrawals and redemptions. Large hedge fund advisers must file these reports as soon as practicable, but not later than 72 hours from the occurrence of the relevant event.

Reporting events for all private equity fund advisers include the removal of a general partner, certain fund termination events, and the occurrence of an adviser-led secondary transaction. Private equity fund advisers must file these reports on a quarterly basis within 60 days of the fiscal quarter end. The amendments will also require large private equity fund advisers to report information on general partner and limited partner clawbacks on an annual basis, as well as additional information on their strategies and borrowings as a part of their annual filing.

The chart below highlights the triggering events and affected private fund advisers:

Triggering Event Large Hedge Fund Advisers with $1.5bn+ in hedge fund AUM All Private Equity Advisers with $150m+ in private fund AUM Large Private Equity Advisers with $2bn+ private equity fund AUM
The investment adviser instigates a secondary transaction File within 60 days of quarter end File within 60 days of quarter end
Investors elect to remove the general partner (with or without cause) File within 60 days of quarter end File within 60 days of quarter end
Investors elect to terminate the fund (for any reason) File within 60 days of quarter end File within 60 days of quarter end
Investors elect to terminate the investment period (for any reason) File within 60 days of quarter end File within 60 days of quarter end
10-business day holding period return of fund is less than or equal to 20% of aggregate calculated value File within 72 hours
10 business day change in posted margin, collateral, or equivalent is greater than or equal to 20% of average daily aggregate calculated value during same period File within 72 hours
Fund is in default on a call for margin, collateral or an equivalent that it cannot cover, or adviser determines that fund will not be able to meet such call File within 72 hours
A counterparty to a reporting fund (a) does not meet a call for margin, collateral or equivalent or fails to make any other payment on time and in the form contractually required and (b) the amount involved is greater than 5% of aggregate calculated value File within 72 hours
Termination or material restriction of a reporting fund’s relationship with a prime broker File within 72 hours
There is a “significant disruption or degradation of the reporting fund’s critical operations” File within 72 hours
Fund receives cumulative requests for withdrawals or redemptions equal to at least 50% of the most recent net asset value File within 72 hours
Fund is unable to pay redemption requests File within 72 hours
Fund has suspended redemptions for at least five consecutive business days File within 72 hours

Clarifying What These Changes Mean for Private Fund Managers

There is no doubt that these new reporting changes present challenges for private fund managers, and particularly for those managing large hedge funds. For starters, the amendments now require large hedge fund advisers to report certain of the above updates within a 72-hour window from a triggering event, a rather significant change from the former 60-day reporting requirement from the end of a quarter.

The main shift that managers will have to make as a result of these changes is staying extra vigilant about monitoring and enhanced data governance to ensure accuracy, integrity, collection and security of information. This likely means that they will need to shift to real time monitoring of their portfolio management systems to ensure all triggering events are captured within the required timeframe, which could be costly for private fund managers as it might necessitate additional resources, including the implementation of new systems and mechanisms, which may include software or internal compliance monitoring controls and reporting procedures.

Tips for Staying Compliant

Clearly there is a lot at stake for large private fund managers in terms of implementation costs and potential risks for non-compliance with these new amendments. This means that all private fund managers need more robust data management systems, along with enhanced compliance and operations teams and controls in place to manage and meet regulatory expectations.

Given that the SEC continues to ratchet up enforcement actions against private fund managers, it is imperative that hedge funds and private equity fund managers ensure their compliance programs remain above board with regulators by adhering to these enhanced Form PF reporting requirements. Below are some tips that Chief Compliance Officers and any outside regulatory compliance consultants should put into practice now, well ahead of the compliance dates, the first of which is November 3rd:

  • Familiarize yourselves with all potential triggering events for filings and assess how your particular line of business could potentially be affected.
  • Conduct a review of policies, procedures, and back-office operations to prepare updates needed for operational workflows and information tracking to meet the new reporting obligations;
  • Update and adopt procedures for identifying reporting triggering events, including those occurring in the ordinary course of business that fall into the definition of a current reporting event necessitating immediate identification and reporting.
  • Clearly designate the parties responsible for monitoring events that would trigger Form PF reporting;
  • Train employees on, and conduct testing of, procedures for identifying and escalating potential filing events in advance of the compliance date;

Overall, it’s important to keep in mind that these amendments are intended to allow the SEC to monitor systemic risk, thus it is likely that these changes to Form PF could lead to additional SEC scrutiny of large private fund managers, while raising the probability of increased SEC inquiries and examinations. 

During these times of enhanced regulatory oversight, it may be prudent for private fund managers to seek the help of third party service providers, such as Silver, to advise on how to appropriately track the triggering events outlined in these amendments and help with the Form PF filings order to reduce the enhanced burden on their internal resources, and to mitigate the risk of non-compliance.

[i] “Large private fund managers” is defined as managers at hedge fund firms with $1.5B AUM and/or private equity firms with $2B AUM