By Lindsay Burckett-St Laurent, Managing Director, U.S.
On May 3 2023, the SEC adopted amendments to Form PF that will enhance the Financial Stability Oversight Council (FSOC)’s ability to assess systemic risk and improve the SEC’s oversight of private fund advisers.
The finalized amendments will apply to:
- Large hedge fund advisers (hedge fund advisers with at least $1.5 billion in hedge fund assets under management)
- Private equity fund advisers (investment advisers with at least $150 million in private equity fund AUM)
- Large private equity fund advisers (private equity fund advisers with at least $2 billion in private equity AUM)
Some of the most important aspects of the ruling are outlined below.
Large hedge fund advisers
Under the new amendments, large hedge fund advisers that experience one or more “trigger events” will be required to file a current report as soon as practicable, but no more than 72 hours after the event(s).
These trigger events include:
- Extraordinary investment losses – This includes suffering a loss equal or greater than 20% of a fund’s reporting fund aggregate calculated value (RFACV) over a rolling 10-business-day period
- Significant margin and default events – This includes experiencing significant increases in the reporting fund’s requirements for margin, collateral or an equivalent based on a 20% threshold based on average daily RFACV; or experiencing a margin default or inability to meet a call for margin, collateral or an equivalent
- Termination or material restriction of the reporting fund’s relationship with a prime broker
- Operations events
- Large withdrawal and redemption requests, inability to satisfy redemptions or suspensions of redemptions – This includes cumulative requests for withdrawals or redemptions exceeding 50% of the most recent net asset value; the inability to pay redemption requests; or the suspension of redemptions for more than five consecutive business days
All private equity advisers
Under the new amendments, all private equity fund advisers must, upon certain trigger events, file event reports within 60 days of each quarter end. These trigger events include:
- Adviser-led secondary transactions
- Removal of a general partner (GP)
- Investor elections to terminate a fund or its investment period
If these trigger events did not occur during a particular quarter, then a quarterly filing is not required.
Large private equity fund advisers
On an annual basis, large private equity fund advisers will be required to report any GP clawback or limited partner (LP) clawback, as applicable.
The GP clawback refers to any obligation of the GP or related person to return performance-based compensation to the fund.
The LP clawback refers to an obligation of a fund’s investors to return distributions to satisfy a liability, obligation or expense of the fund. Filings are required when the aggregate LP clawbacks over the course of the fund’s life exceed 10% of the aggregate capital commitments at such time. Once the 10% threshold is met, reporting will be required for the remainder of the fund’s life.
Large private equity fund advisers also will be required to provide the following information:
- Investment strategies – Private credit, private equity, real estate, annuity and life insurance policies, litigation finance, digital assets, general partner stakes investment and others
- Fund-level borrowings – Reporting includes (i) information on each borrowing or other cash financing available to the fund, (ii) the total dollar amount available, and (iii) the average amount borrowed over the reporting period
- Events of default – Detailed information about the nature of reported events will be required
- Bridge financing to controlled portfolio companies – Reporting the identity of institutions providing bridge financing and the amount of such financing
- Geographic breakdown of investments – Reporting a fund’s greatest country exposures based on net asset value
Implementation timeline
The final amendments will become effective six months after publication of the adopting release in the Federal Register for current and quarterly event reporting, and one year after publication in the Federal Register for the remainder of the amendments.
