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Proposed Form PF Changes: Expanded Reporting for Hedge & Private Funds

About the Proposed Reporting Changes

On August 10, 2022, the Securities and Exchange Commission approved proposing rule amendments to expand reporting requirements for large hedge funds and private equity firms. In a 3-2 vote, the SEC proposed amendments to its Form PF to require hedge funds to provide additional information on performance, investment exposure, investment concentration, and borrowing and financing arrangements.

The proposal is part of a broader effort by the SEC to boost transparency of the private fund industry amid worries the industry is a growing source of systemic risk and follows a January draft rule that boosted other Form PF disclosures.

Form PF, introduced following the 2007-2009 global financial crisis, is the primary way the SEC collects data from private funds to help in assessing systemic risk in the financial system. The proposed changes cover three major areas requiring additional data points:

  1. Enhance how large hedge fund advisors report investment exposures, borrowing and counterparty exposure, market factor effects, currency exposure reporting, turnover, country and industry exposure, central clearing counterparty reporting, risk metrics, investment performance by strategy, portfolio correlation, portfolio liquidity, and financing liquidity.
  2. Require additional basic information about advisors and the private funds they advise including identifying information, assets under management, withdrawal and redemption rights, gross asset value and net asset value, inflows and outflows, base currency, borrowings and types of creditors, fair value hierarchy, beneficial ownership, and fund performance.
  3. Require more detailed information about the investment strategies, counterparty exposures, and trading and clearing mechanisms employed by hedge funds.

This proposal, advanced jointly by the SEC and the Commodity Futures Trading Commission (CFTC), is designed to provide better insights to financial supervisors into the operations and strategies of qualifying hedge funds and their advisors while boosting data quality and consistency.

The SEC has opened a public consultation on the proposal, which will extend for 60 days after the proposals are published on the SEC website.

Jennifer Wood, global head of asset management regulation at private fund trade body The Alternative Investment Management Association (AIMA), comments:

“The proposed changes of this magnitude will require substantial retooling of reporting systems operated by investment advisers and other fund service providers involved in Form PF reporting, including those operated by many AIMA members.

“With this extensive set of changes following on the heels of the other significant set of changes to Form PF proposed earlier this year, there is not inconsiderable risk that market participants are facing multiple updates to their reporting systems next year if the final rules related these proposals do not come out together.

“Given the proposal discussed is jointly owned by the SEC and the CFTC, we will need to assess how these new obligations will affect joint registrants,” says Wood.

SS&C’s View

The Securities and Exchange Commission continues to be aggressive in its desired oversight of the private fund industry. In January and August, the SEC proposed regulations that will significantly impact the way managers monitor and report events and increase the burden on both annual and quarterly Form PF filers. These changes will require investment managers to rethink their methodologies, recalibrate their process and increase technology and human resources dedicated to Form PF preparation.

The proposed amendments, if adopted, are a significant expansion of the compliance reporting requirements of advisors to private funds. As compliance teams and managers consider how they can best position themselves to meet these changes, as well as respond to more changes as they arise, they should consider reporting tools that provide data aggregation, methodology comparison, data analysis and other features that will allow them to produce necessary calculations cost-effectively.

In addition to SS&C’s best-in-class fund administration services, SS&C’s Form PF Reporting Platform provides customized daily reporting tools, using proprietary software that reduces the amount of time managers must spend on regulatory reporting so they can focus solely on their business. Download the "SS&C GlobeOp Regulatory & Analytics Solutions" brochure to learn more about how SS&C's Form PF Reporting Platform can help.

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