Impact of SEC Form PF Amendments on Fund Advisers

As part of the Securities and Exchange Commission’s (“Commission”) continued focus on the regulation of the private fund industry, the Commission has adopted amendments to Form PF. The amendments will significantly impact the timing and reporting obligations of registered private equity advisers, large hedge fund advisers (defined as those advisers with at least $1.5 billion (bn) in assets under management) and large private equity advisers (defined as advisers with at least $2 bn in assets under management) around certain material events (“triggering events”). We expect certain event notification requirements will become effective by the end of 2023, and the entire rule by the end of 2024 pending publication in the Federal Register. Kroll can assist private fund managers in assessing their risk reporting and/or trading system alerts, as well as in developing policies and procedures to comply with the rule amendments. Triggering events include:

• Extraordinary investment losses equal to or greater than 20%  of the reporting fund’s reported fund aggregate calculated value (RFACV), which is every position in the reporting fund’s portfolio
• Significant margin and default events where the reporting fund’s margin threshold exceeds 20% of its RFACV, or where the reporting fund defaults on its margin or is unable to meet a margin call contractually required by a counterparty
• Prime broker terminations or material restrictions conducting business with the reporting fund
• Changes in the reporting fund’s “critical operations” that are necessary for conducting investment advisory services 
• Redemption requests equal to or greater than 50% of the reporting fund’s most recent net asset value after considering subscriptions or other investor contributions received and contractually committed
• Reporting of general partner-led transactions, claw backs or removal, including notification of termination investment period
• Reporting of various private equity fund financing arrangements and defaults, including certain portfolio company look-throughs

Effective six months after the rule is published in the federal register, large hedge fund advisers are required to submit a current report following one of these events to the Commission no later than 72 hours from the occurrence of one or more triggering events, while all registered private equity advisers are required to file an event report addressing any triggering event within 60 days after each fiscal quarter ends.

In addition, effective one year after the rule is published in the federal register, large private equity advisers are required to annually report information pertaining to (1) any claw back to any general partner or limited partner within the past year; (2) information pertaining to its fund(s) strategies; and (3) any use of leverage.

Following the enactment of the new filing requirements, we expect that both examiners and enforcement will focus on the timely filing of the Form PF disclosures—similar to the exam initiative in 2018 (which resulted in 13 enforcement actions related to delinquent filings). Our team can help advisers comply with regulatory filing requirements as well as regulatory examinations.

Kroll will work with private fund advisers to:

• Review, design and test the effectiveness of firms’ risk management programs to ensure triggering events are being identified and escalated
• Review, design and test the effectiveness of policies and procedures to ensure the firm’s additional Form PF reporting obligations and related timing of such submissions are addressed  
• Review, design and test the effectiveness of policies and procedures to ensure the firm’s process around the identification and escalation of any triggering events are addressed
• Facilitate training of individuals responsible for identifying and escalating any triggering events