The first set of changes to Form PF proposed last year by the SEC has now been approved and put into a final rule, soon to be published in the SEC’s Federal Register. According to the SEC, “The amendments will also strengthen the effectiveness of the Commission’s regulatory programs, including examinations, investigations, and investor protection efforts relating to private fund advisors.” The new rules create two new sections to Form PF: Section 5 for large hedge fund advisors and Section 6 for private equity fund advisors. It also makes changes to Section 4 for large private equity fund advisors.
The SEC has summarized with an overall fact sheet that also shows to who the adopted changes will apply:
- Large hedge fund advisors (i.e., hedge fund advisors with at least $1.5 billion in hedge fund assets under management).
- Private equity fund advisors (i.e., investment advisors with at least $150 million in private equity fund assets under management).
- Large private equity fund advisors (i.e., private equity fund advisors with at least $2 billion in private equity assets under management).
Large Hedge Fund Advisors
With the creation of Section 5, the new rule will require large hedge fund advisors to file a current report as soon as practical, but no later than 72 hours after the occurrence of the event. Large hedge fund advisors will need to file Section 5 after the occurrence of certain trigger events including:
- Extraordinary investment losses – 20% of a fund’s “Reporting Fund Aggregated Calculated Value” (RFACV) over a rolling 10-business-day period.
- Increases in the margin – 20% over the average RFAVC over a rolling 10-business-day period.
- Margin default events.
- Certain counterparty default events.
- Termination or material changes to Prime Broker Relationships.
- Operations events – significant disruption or degradation of critical operations functions.
- Certain redemption events – Receipt of cumulative redemption requests greater than or equal to 50% of “Most Recent Net Asset Value” (MRNAV).
- Inability to satisfy redemption request.
Private Equity Fund Advisors
With the creation of Section 6, the new rule will require private equity fund advisors to file a current report within 60 days after the end of any fiscal quarter after the occurrence of certain trigger events including:
- Advisor-led secondary transaction.
- Removal of a General Partner.
- Termination of a fund or changes to a fund’s investment period.
Large Private Equity Fund Advisors
The new rule will require large private equity advisors to report general partner or limited partner clawbacks in excess of 10% of a fund’s aggregated capital commitments on an annual basis in Section 4. The new rule also amends the current Section 4 of Form PF adding new questions and amending existing questions which will add to the burden of completing Section 4.
When do the new rules go into effect?
Time to compliance is quick!
- Sections 5 and 6 – 180 days after publication in the federal register.
- Changes to Section 4 – 365 days after publication in the federal register.
What should managers be doing now?
The changes are significant and there is more coming down the pike based on the SEC’s August 2022 proposal.
Managers should be considering several factors in assessing their ability to comply with this new set of rules. While these new rules are significant and the compliance period is short, managers must look ahead to assess their overall compliance strategy.
Managers need to be asking themselves the following questions:
- What are the data requirements for the new sections 5 & 6?
- How can that data be accessed?
- Do I have to make daily operational changes for required inputs?
- What resources are required to ensure compliance?
- Do I build in-house or outsource?
- What changes might I need to make to future-proof my compliance strategy?
With this new set of rules and the pending August 2022 proposal, managers need to make decisions now to minimize disruption, strengthen capabilities and ensure compliance.
SS&C GlobeOp provides an end-to-end Form PF solution that includes the creation of a validated regulatory book of records, an explanation of the data required, mapping of data, aggregation, comparison of the methodology used by peers, production of reports for review, compliance with new rules and data analytics. Contact us to learn more about how SS&C can help you meet the SEC’s reporting requirements.
Written by Richard Clark
Managing Director, Regulatory Solutions SS&C