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White Says Private Fund Data Gives SEC Truer Picture of Risk in System

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Five years after passage of Dodd-Frank, the Securities and Exchange Commission has a “better understanding of not only the risk profiles of individual” hedge funds and other private funds, said SEC Chairwoman Mary Jo White on Friday, but also of “the broader fund industry and potentially the financial system as whole.”

White said about 1,500 new private fund advisors have registered with the Commission since Dodd-Frank was implemented, giving the SEC “significant insight into the nearly 30,000 private funds managed by 4,500 registered advisors.”

The same day that White spoke in New York to the Managed Funds Association, the SEC released the first aggregated data from the Forms PF that private fund managers have had to submit to the Commission under Dodd-Frank. And according to White, that data suggests that private funds are healthier operations with less leverage and more controlled risk profiles than was the case five years ago.

In her speech, she cited several points from the aggregated data:

  1. Although the total notional value of derivatives reported on Form PF has increased, from about $13.6 trillion to about $14.8 trillion, that value has decreased relative to total net assets from the beginning of 2013 to the end of 2014, from about 256% of net asset value to about 221% of net asset value.
  2. More than half of all large hedge fund advisors report aggregate economic leverage less than two and a half times their total reported hedge fund net assets.
  3. Fewer than 100 reporting hedge funds, representing less than $70 billion in combined net assets, manage some portion of their funds using high-frequency trading strategies.
  4. Since 2013, the number of large hedge fund advisors with at least $1.5 billion in hedge fund assets has increased by approximately 15%
  5. There was an 8% increase in the number of private funds from 2013 to 2014, with a $1 trillion increase in gross assets to nearly $10 trillion.
  6. Of that $10 trillion in private funds, hedge funds represented $6.1 trillion in assets.

White said the aggregated information release should help “to address persistent questions, and to some degree misconceptions, about the practices and size of the private fund industry.” Repeating comments she made in 2013, White said the data “helps investors understand your business and investment approach. When investors have that kind of information, they can make more informed choices and the transparency benefits your entire industry.”

In addition, White said the Form PF data allows SEC to “monitor investment strategies among private funds and to understand the potential effects of certain market or global events.” 

In her speech, White also raised some operational issues for private fund advisors, including cybersecurity. She suggested advisors “pay careful attention” to the issues listed in the Commission’s April 2015 Cybersecurity Guidance as part of advisors’ “compliance obligations under the federal securities laws” to prevent, detect and respond to cyberattacks.

She encouraged private advisors to take a broader view of the impact of cyberattacks beyond its impact on an individual firm and its clients. “Stolen information or compromised infrastructures can spill over into the financial system, potentially putting at risk assets and information far outside the hacked firm. Cybersecurity is the shared responsibility of all regulators and market participants, including investment advisers, to guard the broader financial system against intrusions.”


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