SEC Calls for New Increased Form PF Reporting Requirements for Private-Equity, Hedge Funds

Under the leadership of Chairman Gary Gensler, the U.S. Securities and Exchange Commission (SEC) is set to propose measures that would significantly increase their visibility into private-equity funds and hedge funds, the first significant potential expansion of the SEC’s oversight of private funds and their investment managers since Dodd-Frank.

The SEC plans to issue a proposal that would increase the amount and timeliness of confidential information that private-equity and hedge funds report to the agency on Form PF. The primary objective of the enhanced reporting requirements is to allow regulators to better understand the operations and strategies of private funds for purposes of gauging their implications for financial stability.

The SEC adopted Form PF as part of the Dodd-Frank regulatory overhaul following the 2008 financial crisis. Currently, it is filed by private-equity funds and large hedge funds on a quarterly basis with a 60-day lag. The form includes information such as gross and net assets, performance, investor data, liquidity, borrowings and counterparty exposure, and derivative holdings. The data is used to assist the SEC’s examination effort and is aggregated for federal reporting in public files.

Among other changes, the new proposal may require large hedge funds to file reports within one business day of incidents such as extraordinary investment losses. Private-equity funds would have to file reports within one business day of events such as removal of a fund’s general partner or termination of a fund’s investment period.  It would also require fund managers to provide more information about their use of leverage, including leverage of their portfolio companies.  The agency is also working on a plan to require more private companies to routinely disclose information about their finances and operations, and potentially increase the amount of information that some nonpublic companies must file with the agency.


Implications to Alternative Investment Fund Managers

Data and technology have for a long time been transforming the alternative investment fund industry.  According to a recent article published by Deloitte, investment management firms spent more than $50B on data and technology in 2019 alone, a figure they expect to balloon to $84B by 2023.  Most large private equity and hedge fund managers have been filing Form PF since 2012.  They likely addressed basic data and technology requirements for regulatory reporting by either building internal data warehouses or by leveraging third-party service providers, such as fund administrators, to assist with their reporting requirements.

However, I have found that front runners in the industry have made more significant investments in data and technology across their entire enterprise and focused on creating data- and technology- driven organizations, rather than simply focusing on generating their Form PF report.  These front runners have learned that embracing modernized data applications and platforms can drive competitive differentiation in many regards – not just reporting.  For example, front runners have achieved reductions of operational costs, increased operational efficiencies, lower operational risks, and an enhanced work model that attracts better talent into a test and learn culture.

The recent call for increased reporting requirements should serve as a wake-up call for those investment managers still lagging behind their peers with respect to their operating models and technology.  New challenges will stem from enhanced reporting and legacy operating models will be tested.  Customizations will be increasingly complex, and new data sets will multiply the levels of information within existing data ecosystems tenfold.  With these new challenges come new opportunities.  Investment managers who have viewed data and technology solely as enabling functions separate from their front-office will need to elevate their technology leadership and invest in modern data, systems and applications that enable fast real-time analytics.



Brandon Caroprese has advised alternative investment fund managers for more than 12 years on operational performance initiatives impacting their front, middle and back offices.  He has worked closely with COOs, CFOs, CTOs and CCOs to implement agile processes through mature change management that have helped their organizations transform into leading technology-driven organizations.


This publication is provided by Caroprese & Company as a service to its clients and colleagues.  The information and content included in this publication should not be construed as technical advice.  Questions regarding any matters discussed in this publication should be directed to Brandon Caroprese whose contact information is listed below:

Brandon Caroprese, CPA, MST
Tel. (973)-475-8090

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