The Securities and Exchange Commission on Wednesday approved proposing rule amendments to expand reporting requirements for large hedge funds as well as private equity firms.
In a 3-2 vote, with the commission's two Republicans dissenting, the SEC proposed amendments to its Form PF to require hedge funds with more than $500 million in net assets to provide additional information on investment exposure, investment concentration, and borrowing and financing arrangements.
The amendments, proposed in conjunction with the Commodities Futures Trading Commission, 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 Counsel with confidential information about the basic operations and strategies of private funds.
"I believe that these proposed amendments would bring greater visibility for regulators into this important part of our capital markets and will help protect investors maintain fair, orderly and efficient markets, (and) help issuers as well," SEC Chairman Gary Gensler said during Wednesday's meeting.
The proposal would also require all private fund advisers that are required to submit PFs to report additional information about themselves and their private funds, including assets under management, withdrawal and redemption rights, inflows and outflows, borrowings and types of creditors, beneficial ownership and fund performance, according to an SEC fact sheet.
Commissioner Hester Peirce, who opposed issuing the proposal, said the additional Form PF requests are too granular. "As an homage to Form PF's overriding purpose, the release frequently cites 'systemic risk' to legitimize the proposed harvesting of data relating to individual fund characteristics or actions," she said Wednesday. "The FSOC, however, does not need to have this kind of detailed knowledge of individual private funds' activities to fulfill its mandate to identify risks to financial stability, promote market discipline and respond to emerging financial stability threats."
Bryan Corbett, president and CEO at the Managed Funds Association, said in a statement that alternative asset managers already provide extensive information to regulators. "The SEC should focus on better utilizing this information rather than imposing new burdens on fund managers that are of dubious utility," he said. "The proposal will impair the ability of managers to deliver for their investors, including pensions, foundations, and endowments. It will also restrict the ability of new and emerging managers to enter the market and serve investors."
The proposal's public comment period will remain open for 60 days following publication on the SEC's website or 30 days following publication in the Federal Register, whichever period is longer.
Wednesday's action was the SEC's second Form PF-related proposal of the year.
In January, it proposed amendments to Form PF to require private fund advisers to file reports within one business day of events that indicate significant stress at a fund that could harm investors or signal risk in the broader financial system. Those events include extraordinary investment losses or significant margin and counterparty default events. Currently, firms, depending on their size, are required to file Form PF quarterly or annually.
The comment period for the January proposal closed in March.
