The SEC Amends Private Fund Reporting in 2024

Private fund investment advisers are required to file a Form PF with the Securities and Exchange Commission (SEC) and with the Commodity Futures Trading Commission (CFTC). 

On February 8, 2024, both the SEC and the CFTC adopted several amendments to Form PF.

What is Form PF?

Form PF (referred to as “Form PF” or “the Form”) is the confidential reporting form used by certain private fund investment advisors who are required to file the Form with the SEC (or CFTC, as the case may be). The Form, adopted in 2011 pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), is used to provide the SEC and the Financial Stability Oversight Council (FSOC) with necessary information about the operations and investment strategies of private funds. Its purpose is to provide an overall picture of potential systemic risks in the private fund industry. 

Private fund advisers are currently required to file Form PF with the SEC once a year. Large hedge fund advisers and large liquidity fund advisers, however, are required to file a Form PF quarterly. 

These most recent amendments to Form PF are designed to “fill in gaps in information” in the Form. The amendments are also expected to enhance the SEC’s ability to protect investors by increasing the agency’s ability to monitor and regulate private fund advisors.

How is Form PF Changing? 

According to the SEC, the continued growth of and increased complexity of private fund structures and investment strategies warrants revising Form PF to allow the SEC to collect more — and more detailed — information from private equity fund advisors and hedge fund advisors regarding their activities.

Below, we will briefly highlight some of the more notable changes being made to Form PF. (Please note that the items listed below are just some of the changes being made — the list is not, and is not intended to be, a comprehensive recital of all the changes made by the recent amendments — so please be sure to consult with all necessary professionals and conduct your research regarding all amendments made to Form PF.)

Some of the more notable amendments include:

1.Requiring advisors to report separately each component of a master-feeder arrangement or parallel fund structure. 

As the SEC notes in its final rule on the Form PF amendments, many private funds use complex structures to invest. Master-feeder funds and parallel fund structures are some of the more prevalent complex investment structures used by private funds. Thus, some changes to the Form address this issue.

Until now, the SEC allowed fund advisors to choose whether to answer questions on Form PF regarding master-feeder arrangements and parallel fund structures either in the aggregate or separately — so long as the responses given throughout the Form were consistent. Now, however, the agency is moving away from this flexible reporting approach. According to the SEC, allowing fund advisers to choose whether to respond either in the aggregate or separately regarding master-feeder arrangements and parallel funds “undermined the utility of the data collected.” 

Therefore, the SEC amended Form PF to now require (with few exceptions) separate reporting on each component fund of a master-feeder arrangement and parallel fund structure. 

2. Reporting on private funds that invest in other funds.

Another amendment to Form PF concerns how advisers report private fund investments in other private funds to determine reporting thresholds. The SEC has amended Form PF to remove the previously flexible approach to reporting investments in other private funds, other non-private funds, and trading vehicles, to determine reporting thresholds. 

The form now requires that advisors include the value of investments in other private funds when:

• determining whether the adviser is required to file a Form PF,

• determining whether the fund meets the thresholds for reporting as a large hedge fund advisor, large liquidity fund advisor, or large private equity fund advisor, and when.

• determining whether a hedge fund is a “qualifying hedge fund,”

for threshold purposes.

3. Form PF has been amended to require additional information identifying the adviser and the private funds it manages.

Amendments to Form PF include changes to the Form that will allow the SEC to collect more information regarding:

• the fund advisor

• any related persons, and

• the private fund assets under management.

As part of the requirement for more specific information, the use of Legal Entity Identifiers (LEI) on the Form is also being revised. An LEI is a unique reference code that is designed to enable regulators to identify parties to a financial transaction precisely and instantly. 

Until now, the SEC allowed advisers to substitute other financial identifiers (for example, an RSSD ID) in Form PF instead of providing an LEI. The SEC is amending the definition of LEI to no longer allow non-LEI identifiers to be used. This means that if a question on Form PF asks for an LEI, financial institutions may not substitute any other identifier on the Form. They must provide an LEI if one has been assigned.

Similarly, if they have an LEI, the amendments now require that advisors provide that LEI for themselves and for their “related persons.”

The consistent use of an LEI will make it easier for SEC staff to link up data and will help to avoid unnecessary confusion. The use of other identifiers (other than an LEI) is still permissible, but only if Form PF does not specifically ask for an LEI. Also, the amendments do not require an entity that does not have an LEI to get one. Rather, it makes clear that when an LEI is asked for, no other identifier may be substituted.

4. The Form now requires additional information about the private funds that are being managed.

To reduce the risk of error and improve data quality and comparability, Form PF is being amended to require advisors to provide more information about the private funds they manage.

Among other things, advisors will now be required to report on:

• identifying information

• assets under management

• withdrawal and redemption rights

• gross asset value

• net asset value

• inflows and outflows

• base currency

• borrowings and types of creditors

• fair value hierarchy

• beneficial ownership, and 

• fund performance.

It is believed that this additional and more specific information will provide the SEC with greater insight into a private fund’s operations and strategies, thereby helping the SEC identify systemic risks.

5. More information is being required for hedge funds.

For large hedge funds (i.e., hedge funds with a net asset value of at least $500 million) advised by large private fund advisors, the amendments to Form PF remove certain reporting requirements to alleviate some unnecessary reporting burdens yet are adding questions requiring additional information in other areas. (For more details, see the final rule here.) 

The SEC’s goal in deleting some of the reporting requirements was to lessen the burden on large hedge fund advisors while at the same time narrowing the Form’s focus to elicit more useful information that can better assist the SEC in its systemic risk assessment endeavors.

The amended Form PF will require large hedge fund advisors to provide more detailed information regarding:

• hedge fund investment strategies.

• counterparty exposures, 

• trading and clearing mechanisms employed by hedge funds,

• how large hedge fund advisers report investment exposures

• borrowing

• market factor effects

• currency exposure

• turnover

• country and industry exposure

• central clearing counterparty reporting

• risk metrics

• investment performance by strategy

• portfolio liquidity, and 

• financing and investor liquidity.

As with its other amendments, these changes are designed to provide the SEC with better insight into the operations and strategies of qualifying hedge funds and their advisers.

6. Removal of aggregate reporting for large hedge fund advisors.

Finally, the current amendments remove the requirement that fund advisors of large hedge funds report “aggregated information about the hedge funds they advise.” 

The changes made to Form PF are extensive, and a complete recitation of each change is beyond the scope of this article, so please do your research and consult with securities professionals regarding your reporting and compliance requirements.

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