By: Marc Gorfinkle
The SEC recently published an expanded suite of Private Funds Statistics derived from the Form PF and Form ADV filings. Form PF provides risk exposure statistics including the type and size of assets held by private firms.
This is the first time the SEC expanded the statistical scope of Form PF. Unlike Form ADV, a public form required from private funds, Form PF goes into detail on proprietary information. The aggregation of this data into general statistics allows the SEC to strike a balance between public disclosure and maintaining the anonymity necessary to safeguard proprietary strategies.
“We believe publishing these statistics provides the public with more transparency into and understanding of the private funds industry,” says Michael Piwowar, commissioner at the SEC.
“The additional statistical analyses represent a continued focus on using data to inform policy and provide public information and will continue to facilitate feedback and analysis that could be used by the Commission and others.”
One new interesting statistic is the gross asset value (GAV) to net asset value (NAV) ratio, which provides a reasonable idea of leverage used by private funds.
On average, qualifying hedge funds (> $500mm NAV) are approximately 1.6X levered. This is much higher than the industry as a whole, which is approximately 1.1X levered. This difference reflects the SEC criteria for classifying a fund as a hedge fund, which includes the ability to borrow in excess of one-half of net asset value.
Further, the GAV:NAV ratio is an expression of market value, not notional value. It also does not necessarily capture all types of leverage. For example, the Form PF leverage ratio excludes the impact of short positions and leverage embedded in derivative instruments. Unlike its American counterpart, the European AIFMD Annex IV requires more involved leverage calculations.
Hedge funds may appear to be more levered when filing with European regulators; however, the higher reported leverage is the result of including short positions and derivative imbedded leverage. While the leverage ratios in Annex IV are more accurate, the GAV:NAV ratio in Form PF is more standardized.
Here is the full suite of Form PF statistics:
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