In May 2023, the SEC adopted amendments to Form PF, which change certain existing questions and create new events-based reporting requirements. With the compliance date for new events-based reporting set for December 11, 2023, private fund advisers should be actively reviewing their policies and procedures to ensure they are ready to comply with the new requirements during periods of significant market volatility. Private fund advisers should also ensure that they are on target to respond to changes to existing sections of Form PF that have a later compliance date of June 11, 2024.
New Questions for Large Private Equity Fund Advisers (Section 4)
The amendments to Form PF1 add or modify several reporting items in Section 4, including questions relating to (i) fund strategies; (ii) general partner and certain limited partner clawbacks; (iii) fund-level borrowings; (iv) events of default; (v) bridge financing to controlled portfolio companies; and (vi) reporting on the geographic breakdown of investments by private equity funds. These questions generally request additional information in the form of check boxes, dropdown menus, and text boxes.
New Events-Based Reporting Obligations (Sections 5 and 6)
The amended Form PF includes events-based reporting obligations in addition to the existing quarterly and annual update requirements, as detailed below.
"Current Reporting" for Large Hedge Fund Advisers to Qualifying Hedge Funds (Section 5)
Section 5 of the amended Form PF now consists of the "current report" that large hedge fund advisers will need to file as soon as practicable, but no later than 72 hours, upon the occurrence of the following reporting events: (i) extraordinary investment losses; (ii) significant margin and default events; (iii) material changes in prime broker relationships; (iv) operations events; and (v) certain events associated with redemptions.
- Extraordinary Investment Losses: Large hedge
fund advisers whose funds see extraordinary losses over a short
amount of time will need to provide a report conveying details of
the losses. This new reporting requirement is triggered when, over
a rolling 10-business day period, a qualifying hedge fund incurs a
loss equal to or greater than 20% of the fund's reporting fund
aggregate calculated value ("RFACV").
- Significant Margin and Default Events: The
amended Form PF will require reporting (i) when there is an
increase in margin, collateral, or an equivalent equal to or in
excess of 20% of the average daily RFACV between the first day and
the last day of a rolling 10-business-day period; (ii) when large
hedge fund advisers receive notification or determine that the
reporting fund is in default on a call for margin, collateral, or
an equivalent; and (iii) when a counterparty to the reporting fund
fails to meet a call for margin, collateral, or an equivalent, or
does not make any other payment that is contractually required in
the proper form and timeframe (inclusive of cure periods in the
contract) and the amount involved is over 5% of RFACV.
- Prime Broker Relationship Terminated or Materially
Restricted: Large hedge fund advisers will need to report
if (i) a prime broker wholly or partially terminates or materially
restricts its relationship with the reporting fund in markets where
the prime broker remains active; or (ii) the relationship between
the prime broker and the reporting fund was terminated by either
party within the last 72 hours and a termination event in the prime
brokerage agreement or related agreements was activated within the
last 12 months.
- Operations Events: Large hedge fund advisers
will need to report when there is a "significant disruption or
degradation of the reporting fund's 'critical
operations.'" Such reporting is required regardless of
whether the event is caused by an event at the reporting fund, the
adviser, or a service provider to the reporting fund.
- Events Associated with Redemptions: Large hedge fund advisers will need to report when the reporting fund receives cumulative requests for withdrawals or redemption equal to or in excess of 50% of the most recent net asset value. Large hedge fund advisers will also need to report when the reporting fund (i) cannot pay redemption requests or (ii) has suspended redemptions for more than 5 consecutive business days.
Quarterly Private Equity Event Reports for All Private Equity Fund Advisers (Section 6)
In addition to required annual filings, Section 6 of the amended Form PF now consists of the "quarterly report" that all private equity fund advisers must file within 60 days after the end of their fiscal quarters if a private equity current reporting event takes place. Private equity current reporting events include: (i) closing an adviser-led secondary transaction and (ii) receipt of notice that the fund's investors have (a) removed the adviser or an affiliate as the general partner (or as a similar control person); (b) elected to terminate the fund's investment period; or (c) elected to terminate the fund. Once these events are reported, advisers will not need to include them on subsequent quarterly reports.
Conclusion
As the amendments to Form PF will require several changes, including accurate reporting during periods of market stress, private fund advisers should mobilize now to make sure that they are capable of meeting time-sensitive events-based reporting requirements and should keep abreast of potential changes that could affect Form PF in the future.
Footnote
1. Form PF; Event Reporting for Large Hedge Fund Advisers and Private Equity Fund Advisers; Requirements for Large Private Equity Fund Adviser Reporting, 88 FR 38146 (June 12, 2022), available at https://www.federalregister.gov/documents/2023/06/12/2023-09775/form-pf-event-reporting-for-large-hedge-fund-advisers-and-private-equity-fund-advisers-requirements. Private fund advisers should be aware that the CFTC and the SEC have issued a joint proposal for further changes to Form PF that is currently under consideration (the "Joint Proposal").14 Action on the Joint Proposal could take place as early as October 2023.
We are also grateful to Bhavishya Barbhaya, Haanbee Choi, Michal Folczyk, Matthew Gallot-Baker, and Daniel Kim for their contributions to this regulatory update
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