What Does the Impending SEC Proposal Mean for Large Advisors?

On May 3, 2023, the Securities and Exchange Commission (SEC) voted to adopt amendments to Form PF. These amendments will impact SEC-registered investment advisors in the private fund industry. The goal of these changes is to enhance transparency in the private fund arena, which has evolved since Form PF’s inception. This alert examines how the amendments impact private equity fund advisors, large private equity fund advisors, and large hedge fund advisors.

Implications for Private Equity Fund Advisors (with over $150 million in AUM)

Private equity funds must now report quarterly on completed adviser-led secondary transactions quarterly and instances where investors have removed the general partner or terminated the fund. The SEC is also “adopting event reporting for all private equity advisors, which would include quarterly reporting within 60 days after quarter ends for advisor-led transactions and general partner removals and investor elections.” Meanwhile, in terms of general partner or limited partner, claw backs are to be reported on a current basis.

Implications for Large Private Equity Fund Advisors (managing $2 billion or more in AUM)

Large private equity funds must report annually on claw backs, investment strategies, borrowings, and defaults or bridge financings. They are also required to report “more detailed information regarding certain activities of private equity funds that are important to the assessment of systemic risk and for the protection of investors.”

Implications for Large Hedge Fund Advisors (managing $1.5 billion or more in AUM)

Large hedge fund advisors must report important financial events within 72 hours if such events impact a fund. These events include extraordinary investment losses, significant margin and default events, and terminations of prime broker relationships. The SEC is adopting “amendments that will require large hedge fund advisors to file a current report with respect to one or more current reporting events at a qualifying hedge fund that they advise.” A qualifying hedge fund is defined in Form PF as “any hedge fund that has a net asset value (individually or in combination with any feeder funds, parallel funds and/or dependent parallel managed accounts) of at least $500 million as of the last day of any month in the fiscal quarter immediately preceding its most recently completed fiscal quarter.”

In a departure from the Proposal, the reporting threshold for large private equity fund advisers remains at $2 billion, and not the lower $1.5 billion as originally suggested.

While the SEC is continuing to hear comments about proposals to Form N-MFP, which applies to large liquidity fund advisors, there are no amendments at this time. The Committee also proposed that funds provide a definition for “digital assets” in connection with their investment strategies, though the proposal does not provide a definition itself.

Adjusting disclosure practices will be a key step for advisors in navigating these proposed changes successfully. For more information, please contact Ed Thorp, David Horton or your Anchin Relationship Partner.