Private fund advisors with more than $1 billion in assets under supervision have a greater need for monitoring, especially after lessons learned during the recent financial crisis, according to the Securities and Exchange Commission.
So the commission proposed requiring all registered investment advisors that work with one or more private funds to complete a new document, the Form PF. Registered investment advisors who work with hedge and private equity funds, among others, would be required to file the new form periodically.
The U.S. Commodity Futures Trading Commission (CFTC), which regulates the commodity futures and options markets, could vote tomorrow on jointly proposing the new reporting requirements, according to the SEC.
“Today’s proposal stems from the lessons learned during the recent financial crisis—about the importance of monitoring and reducing the possibility that a sudden shock or failure will cascade through the entire financial system,” SEC chairman Mary L. Schapiro said in a statement during an SEC open meeting on Tuesday.
The frequency of filing depends on the size of the practice. Large firms would include any advisor with $1 billion of assets under management in hedge funds, private equity funds, or unregistered money market funds, also known as liquidity funds. All other private fund advisors would be considered smaller, for reporting purposes.
If a firm is large, then it would file Form PF on a quarterly basis, and the focus of the reporting would depend on the type of fund the advisor oversees. Hedge fund advisors, for instance, would do wholesale reporting on exposures by asset class, geographical concentration and turnover. Also, for each managed hedge fund having a net asset value of at least $500 million, the advisors would report information relating to that find’s investments, leverage, risk profile and liquidity.
Large liquidity fund advisors would have to report on the types of assets in each of their liquidity fund’s portfolios, information relevant to the risk profile of the fund, and the fund’s policy of complying with all or aspects of the Investment Company Act’s principal rule concerning registered money market funds (Rule 2a-7), the SEC said.
Lastly, large private equity fund advisers would provide information on the extent of leverage incurred by their funds’ portfolio companies, the use of bridge financing, and their funds’ investments in financial institutions.
“Although this heightened reporting threshold would apply to only about 200 U.S.-based hedge fund advisors, these advisors manage more than 80 percent of the assets under management,” Schapiro said. “Similarly, SEC staff estimates that there are approximately 250 U.S. based private equity fund advisers managing over $1 billion in private equity fund assets, representing approximately 85% of the U.S. private equity fund industry.”
As for small private fund advisors, the requirements are less detailed and stringent. Those managers would need to file Form PF just once a year, and only basic information at that. Required information would include leverage, credit providers, investor concentration and fund performance.