The Securities and Exchange Commission and Commodity Futures Trading Commission jointly adopted amendments to expand reporting requirements for large hedge funds and other private fund managers.
Under the amendments to Form PF, adopted last week, hedge funds with more than $500 million in net assets are required to provide additional information that includes investment exposure, country and industry exposure, investment performance by strategy, portfolio liquidity, and borrowing and financing arrangements.
The amendments, originally proposed in August 2022, are designed to improve oversight of systemic risk in the private fund industry. Form PF, adopted by the SEC and CFTC in 2011, provides the agencies and the Financial Stability Oversight Council with confidential information about the basic operations and strategies of private funds.
"Since Form PF first was adopted, the SEC, CFTC and FSOC have identified gaps in the information we receive from private fund advisers," SEC Chair Gary Gensler said in a statement. "These amendments to Form PF will enhance the commissions' and FSOC's understanding of the private fund industry as well the potential systemic risk posed by the industry and its individual participants. In addition, the adoption also furthers investor protection efforts."
The amendments will also require private fund advisers to disclose additional basic information, including identifying information, assets under management, withdrawal and redemption rights, gross asset value and net asset value, inflows and outflows, base currency, borrowings and types of creditors, fair-value hierarchy, beneficial ownership and fund performance, according to an SEC fact sheet.
The SEC's two Republican commissioners issued statements voicing their dissents.
"We have failed to explain why we must collect a small, unrepresentative component of the whole in order to fulfill Form PF's purpose," said Commissioner Hester Peirce. "Systemic risk involves the forest — trying to monitor the state of every individual tree at every given moment in time is a distraction and trades off the mistaken belief that we have the capacity to draw meaning from limitless amounts of discrete and often disparate information. Unbridled curiosity seems to be driving this decision rather than demonstrated need."
The amendments faced industry pushback during a 2022 comment period and after they were finalized. Bryan Corbett, president and CEO at the Managed Funds Association, said in a statement that changes to Form PF are misguided and will harm regulators' ability to monitor systemic risk.
"The final rule requires advisers to submit misleading information to regulators that creates a warped perception of fund activity," he said. "The broad, undisciplined request for data will put sensitive proprietary investment strategies at risk, drive industry consolidation and increase the cost of investing for the beneficiaries of alternative asset managers, including pensions, foundations and endowments."
But Benjamin Schiffrin, director of securities policy at the nonprofit watchdog Better Markets, said in a statement that the amendments were needed to make the system safer.
"The SEC and CFTC recognized appropriately that the evolution of private funds in the last decade required that they update the information that is reported pursuant to that statutory authority," he said. "The amendments that they adopted will better enable FSOC to assess systemic risk and better enable the commissions to protect investors."
The amendments will go into effect one year after publication in the Federal Register.
The Feb. 8 Form PF amendments were not the first adopted during Gensler's SEC tenure. In May 2023, the commission adopted amendments to require private fund advisers to more frequently disclose certain events. Those amendments go into effect in June.