Statement on Amendments to Form PF to Require Current Reporting and Amend Reporting Requirements for Large Private Equity Advisers and Large Liquidity Fund Advisers

Washington D.C.

Last year, I gave a speech about assessing the unknown.[1] My thesis was that we should proactively try to anticipate the risks that may arise and proliferate in our financial markets. If we continuously evaluate the threats that our markets and investors may face, it should help us promote market resilience and appropriate investor protections, even when destabilizing events inevitably occur.

That process is critical, but must begin with reviewing and analyzing accurate and sufficient data.   With regard to the private funds market, the Commission historically has had little data about the economic activities of private funds and any risks they may present to both investors and to the larger financial   system.[2]  Consequently, as part of the Dodd-Frank Act reforms, the Commission adopted Form PF.  It was a good step forward, providing both the Commission and the Financial Stability Oversight Council (FSOC) with data about private funds to help assess risks.

And while Form PF information has been helpful to our understanding of private funds, the past ten years also have highlighted shortcomings and gaps in the data.[3]  These gaps in visibility are compounded by the simultaneous growth in the size of the private funds market and these funds’ increasingly complex structures, strategies, and exposures.[4]

The Commission must keep pace with the market evolution, and Form PF updates are fundamental to providing the Commission with high-quality and meaningful disclosures. This includes requiring more granular and timely disclosures and updates[5] that will improve our understanding of the private fund industry and the potential risks within it.  Accordingly, today’s rule proposes to amend Form PF in a variety of ways.  I’ll briefly address three of those important changes.   

First, the proposal would require advisers to certain large funds to notify the Commission when there are signs of stress at those funds that could result in acute risks to investors and markets.[6]   The more timely updates should advance the Commission’s oversight role. It is much harder to effectively plan for or mitigate risks when the information we’re getting is already stale.  

Second, the proposal requires more detailed information from some of the biggest advisers to liquidity funds.[7]  These new data are essential to understanding these funds’ characteristics, including their susceptibility to runs.[8]

Finally, the proposal would require more specific disclosures from all advisers to private equity funds. The private equity fund market in particular has grown dramatically in the last decade and private equity advisers have expanded the scope of their investment strategies and the types of their offerings, including a significant increase in credit strategies. In other words, they could be investing more heavily in risky debt, such as collateralized loan obligations (“CLOs”)[9].  

This proposal is an important step that seeks to put the Commission and FSOC in a better position to understand, assess, and take action regarding significant developments at private funds, potential stresses to the broader financial markets, and practices that raise potentially significant investor protection concerns.

Thank you to the Chair’s office, the staff in the Division of Investment Management, the Office of the General Counsel, and the Division of Economic and Risk Analysis for their thoughtful work on today’s proposal. I look forward to reviewing the comment letters and working with the staff as we move toward a final rule.


[1] Caroline A. Crenshaw, Commissioner, Sec. & Exch. Comm’n, Assessing the Unknown (Sept. 24, 2021).

[2] See Proposed Amendments to Form PF to Require Current Reporting and Amend Reporting Requirements for Large Private Equity Advisers and Large Liquidity Fund Advisers, Release No. IA-5950 [hereinafter Proposing Release] at 82.

[3] See id. at 83-91.

[4] There were 6,910 funds with $1.60 trillion in gross assets in first quarter of 2013 and 15,584 funds with $4.71 trillion in gross assets in the fourth quarter of 2020. Div. of Investment Mgmt., Sec. & Exch. Comm’n, Private Fund Statistics (Aug. 21, 2021).

[5] Instruction 9 to Form PF directs large hedge fund advisers file within 60 calendar days of their first, second and third fiscal quarters.  Large liquidity fund advisers file within 15 calendar days of their first, second and third fiscal quarters.  All other advisers file their annual updates within 120 calendar days after their fiscal year ends. These filing deadlines result in the delay of timely information being provided to the Commission.

[6] Reporting events for large hedge funds include: extraordinary investment losses; certain margin events; counterparty defaults; material changes in prime broker relationships; changes in unencumbered cash; operations events; and certain events associated with redemptions. Reporting events for all private equity funds include: execution of an adviser-led secondary transaction; implementation of a general partner or limited partner clawback; and removal of a fund’s general partner, termination of a fund’s investment period, or termination of a fund. 

[7] Form PF defines “liquidity fund” broadly to include any private fund that seeks to generate income by investing in a portfolio of short term obligations in order to maintain a stable net asset value or minimize principal volatility for investors. See Form PF Glossary. Liquidity funds follow similar investment strategies as money market funds, but are unregistered.

[8] See Proposing Release at 67-68, 105-106.

[9] See Crenshaw, supra note 1. Collateralized Loan Obligations (CLOs) are structured investment vehicles that hold pools of leveraged loans. Leveraged loans refer to loans made to highly levered or non-investment grade debt. See S.P. Kothari et al., Sec. & Exch. Comm’n., U.S. Credit Markets Interconnectedness and the Effects of the COVID-19 Economic Shock (Oct. 2020). CLOs share some key characteristics with Collateralized Debt Obligations (CDOs). Namely, both are highly complex products that involve high-risk debt that have been structured into a set of securities with AAA-rated tranches, which are marketed to investors as higher-yielding safe debt. See, e.g., Profs. Elizabeth DeFontenay & Erik Gerding, Meeting of the Securities and Exchange Commission Investor Advisory Committee (Sept. 19, 2019); Frank Portnoy, The Looming Bank Collapse: The U.S. Financial System Could be on the Cusp of Calamity. This Time, We Might Not Be Able to Save It, Atlantic (July/Aug. 2020). I am continuing to think about the risks such structured products can pose, including how deteriorating loan documentation, “covenant-lite” loans that result in fewer protections for lenders, and lower expectations of recoveries in default increase the risks attendant to CLOs.

Last Reviewed or Updated: March 25, 2022