Speech by SEC Commissioner:
“Obtaining Reliable Information Regarding Private Fund Advisers”
Commissioner Luis A. Aguilar
SEC Open Meeting
October 26, 2011
The Dodd-Frank Act requires the SEC and the CFTC to serve as conduits for collecting and delivering private fund information to the Federal Stability Oversight Council (FSOC). The process by which this recommendation arrived has been one of collaboration and consultation. Our staff worked in close consultation with the staff representing other FSOC members, as well as with the staff of foreign regulators.
I particularly applaud the close collaborative relationship our staff has built with the staff of the U.K. Financial Services Authority (FSA) and the European Securities and Markets Authority (ESMA). These efforts have allowed the respective staffs to share insights and information as they worked to more closely align the Form PF reporting and the ESMA reporting requirements.
It is very important to me that the staff has worked in conjunction with other regulators, both domestic and foreign. By doing so, we learn from each other and develop reporting requirements that create synergies around the world and truly inform FSOC’s mission to monitor systemic risk.
In addition to those efforts, the staff and Commissioners have met with a number of interested parties and have carefully considered the many comment letters we received.
Today’s adoption of a new reporting form to aid in the monitoring of systemic risk is an important step. As of this moment, there is no baseline of reliable information on which FSOC can rely to assess the systemic risk of the activities of private funds, particularly hedge funds. In its first annual report, FSOC noted that the private fund market contained significant assets and explained that “[h]istorically, regulators have had little reliable, detailed information regarding the activities of any particular hedge fund or hedge funds in general, which is of concern because of their increased role in the financial system.”1 By adopting and moving to implement Form PF, the SEC assists FSOC in taking an important step to correct this information vacuum.
I also want to highlight that the SEC staff has already begun to incorporate Form PF into the Investment Adviser Registration Depository (IARD). Because this system is self-funded, the staff was able to take immediate steps to set up a self-sustaining system. I appreciate the steps the staff is taking to construct the system to ensure that the information collected from Form PF will be kept confidential.
The recommendation before the Commission today reflects a significant amount of changes that the staff made to the original proposal, in response to comments received. In particular, as compared to the proposal, today’s recommendation reduced both the number of private equity fund advisers required to report, as well as the reporting frequency and level of detail for those who do report. The staff has made representations that, although these changes will reduce by almost 50% the number of private equity fund advisers required to complete the detailed reporting required in Section 4 of Form PF,2 the changes will not impact FSOC’s ability to obtain all the salient information that it needs.
To monitor systemic risk is a herculean task. To do it blindly is to invite failure. At least today, one step has been taken to collect and provide FSOC with reliable, necessary information to further its own mission and foster stability within the financial system.
I thank the staff for answering my many questions on this recommendation. As I have already conveyed to the staff, their work on this recommendation represents a stellar effort. I support the recommendation and would like to add my thanks to those that have already been expressed.
1 See FSOC Annual Report 2011, p. 69. http://www.treasury.gov/initiatives/fsoc/Pages/annual-report.aspx
2 Section 4 of Form PF requires that large private equity advisers report certain information for each private equity fund they manage, including certain information about guarantees of portfolio company obligations and the leverage of the portfolio companies that the fund controls.