These changes, adopted in conjunction with the Commodity Futures Trading Commission (CFTC), have been implemented to strengthen the Financial Stability Oversight Council’s (FSOC) ability to monitor and evaluate systemic risk, the SEC said in a Thursday (Feb. 8) press release.
“These amendments to Form PF will enhance the Commissions’ and FSOC’s understanding of the private fund industry as well as the potential systemic risk posed by the industry and its individual participants,” SEC Chair Gary Gensler said in the release. “In addition, the adoption also furthers investor protection efforts.”
Form PF was created after the 2008 financial crisis and is designed to give regulators important information on the inner workings of private funds, helping the SEC assess risk. The SEC has said in the past that the private fund industry has evolved since the form was created.
One of the key changes introduced by the amendments announced Thursday is the enhancement of reporting requirements for large hedge fund advisers, according to the release. These enhancements encompass a range of areas such as investment exposures, borrowing and counterparty exposure, market factor effects, currency exposure, turnover, country and industry exposure, central clearing counterparty reporting, risk metrics, investment performance by strategy, portfolio liquidity, and financing and investor liquidity.
These modifications provide regulators with a more comprehensive understanding of hedge funds’ operations and strategies, thereby improving data quality and comparability, the release said.
The amendments also require the disclosure of additional basic information about advisers and the private funds they advise, per the release. This includes 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.
By providing greater insight into the operations and strategies of private funds, these amendments assist in identifying trends that could potentially create systemic risk, the release said. Moreover, they aim to improve data quality, comparability and reduce reporting errors.
The amendments also focus on obtaining more detailed information about the investment strategies, counterparty exposures, and trading and clearing mechanisms employed by hedge funds, according to the release.
This additional transparency allows regulators to gain a deeper understanding of hedge funds’ operations and strategies, aiding in the identification of trends and potential risks, the release said. Simultaneously, duplicative questions have been removed to streamline reporting and improve data quality and comparability.
The amendments to Form PF will become effective one year after publication in the Federal Register, per the release.