SEC Adopts Hedge Fund Reporting Rules

Form PF will be 'tiered' so the SEC receives more detailed information from larger private fund advisors

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The Securities and Exchange Commission on Wednesday adopted a rule to require advisors to hedge funds and other private funds with at least $150 million in assets to report information for use by the Financial Stability Oversight Council (FSOC) in monitoring risks to the U.S. financial system.

Under the new reporting requirements, only SEC-registered advisors with at least $150 million in private fund assets under management will be required to file a periodic reporting form, Form PF. Information reported on the Form PF—which is a joint effort of the SEC and Commodity Futures Trading Commission (CFTC)–will remain confidential.

These private fund advisors are divided by size into two broad groups–large advisors and smaller advisors. The amount of information reported and the frequency of reporting depends on the group to which the advisor belongs, the SEC said in announcing the rule.

SEC Chairman Mary Schapiro (left) noted during an SEC open meeting on Wednesday that Form PF would be “tiered” so that the SEC receives more detailed information from larger private fund advisors, rather than imposing the same reporting requirements for all private funds.

She said the minimum reporting requirement of $150 million is a change from the SEC's original proposal "so that smaller private fund advisors would not be required to file the form, in part because these smaller advisors would have a minimal impact on a broad-based systemic risk analysis."

Although the $150 million reporting threshold would apply to only about 230 U.S.-based hedge fund advisors, Schapiro said, "these advisors manage more than an estimated 80% of the assets under management. "

The private fund data collection is mandated by the Dodd-Frank Act.

Schapiro also noted that adopting Form PF “was the result of extensive and collaborative consultation with fellow FSOC members as well as coordination with international regulators.”

As a result, Schapiro said, “we have produced a document that will address the dramatic lack of private fund information available to regulators today while easing the burden on private fund managers producing the data, so that the same data collection approaches and protocols apply cross-border where appropriate.”

She went on to say that this private fund data collection initiative “follows from the lessons learned during the financial crisis–lessons about the importance of monitoring and reducing the possibility that a sudden shock or failure of a financial institution will cascade through the entire financial system.”

According to the SEC, “large private fund advisors” are:

  • Advisors with at least $1.5 billion in assets under management attributable to hedge funds.
  • Liquidity fund advisors with at least $1 billion in combined assets under management attributable to liquidity funds and registered money market funds.
  • Advisors with at least $2 billion in assets under management attributable to private equity funds. All other respondents are considered smaller private fund advisors.

The SEC says that it anticipates that most private fund advisors will be regarded as smaller private fund advisors, but that the relatively limited number of large advisors providing more detailed information will represent a substantial portion of industry assets under management. As

a result, “these thresholds will allow FSOC to monitor a significant portion of private fund assets while reducing the reporting burden for private fund advisors,” the SEC says.

Smaller private fund advisors must file the form only once a year within 120 days of the end of the fiscal year, and report only basic information regarding the private funds they advise, the SEC says. “This includes limited information regarding size, leverage, investor types and concentration, liquidity, and fund performance. Smaller advisors managing hedge funds must also report information about fund strategy, counterparty credit risk, and use of trading and clearing mechanisms.”

As to possible changes to Form ADV, the SEC noted that in June it adopted amendments to Form ADV that, among other things, expand the information collected regarding private funds. On Form ADV, the SEC says, private fund advisors will report basic organizational and operational information about each fund they manage, general information about the size and ownership of the fund and the identity of five categories of "gatekeepers" that perform critical roles for advisers and the private funds they manage (such as auditors, prime brokers, custodians, administrators and marketers).

The Form ADV information “complements the information that will be collected on Form PF, helping FSOC fill out a broad picture of the private fund industry,” the SEC said.

The SEC notes that unlike information reported on Form PF, the private fund information reported on Form ADV will be available to the public.

Compliance with the rule will include a two-stage phase-in period for compliance with Form PF filing requirements, the SEC says.

Most private fund advisors will be required to begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after Dec. 15, 2012.

However, the following advisors must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after June 15, 2012:

  • Advisors with at least $5 billion in assets under management attributable to hedge funds.
  • Liquidity fund advisers with at least $5 billion in combined assets under management attributable to liquidity funds and registered money market funds.
  • Advisors with at least $5 billion in assets under management attributable to private equity funds.
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