The Securities and Exchange Commission on Wednesday approved proposing rule amendments to expand reporting requirements for large hedge fund and private equity firms.
In a 3-1 vote, with the commission's lone Republican, Hester M. Peirce, dissenting, the SEC proposed amendments to its 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 proposal would also decrease the reporting threshold for large private equity firms to $1.5 billion from $2 billion in assets under management. Moreover, it would require more information from large private equity funds regarding fund strategies, use of leverage and portfolio company financings, controlled portfolio companies — or CPCs — and CPC borrowings, fund investments in different levels of a single portfolio company's capital structure, and portfolio company restructurings or recapitalization.
The amendments are designed to enhance the SEC's regulatory oversight of private funds managers as well as bolster the Financial Stability Oversight Council's ability to assess systemic risk. The SEC's experiences with recent market events, like the March 2020 COVID-19 turmoil and the January 2021 market volatility in certain stocks, have highlighted the importance of receiving current and robust information from market participants, the SEC said in a fact sheet.
"The private fund industry has grown in size to $11 trillion and evolved in terms of business practices, complexity of fund structures and investment strategies and exposures," SEC Chairman Gary Gensler said in a statement. "The commission and Financial Stability Oversight Council now have almost a decade of experience analyzing the information collected on Form PF. We have identified significant information gaps and situations where we would benefit from additional information."
The proposal will have a 30-day comment period upon publication in the Federal Register.
In a separate 3-1 vote with Ms. Peirce dissenting, the SEC also proposed amendments to expand Regulation ATS for alternative trading systems to include systems that trade government securities, NMS stock and other securities. It will also have a 30-day comment period upon publication in the Federal Register.