Sep. 9, 2022
September 9, 2022 In August 2022, the Securities and Exchange Commission elected to present amendments to Form PF - a requirement for regulatory filing that private fund advisers must comply with in reporting regulatory assets to the FSOC (Financial Stability Oversight Council). The proposal seeks to improve the reporting time and threshold to ensure expedited information exchange and immediate action when and where needed. Amendments Proposed by the SEC Comment period is fully supported by myself and colleagues of Mohammed Ali Rashid Advisors, the SEC proposed changes that will affect the disclosure obligations imposed on private equity advisers are a positive overall piece of regulation that is welcomed. As a result of the proposal, advisers will have to report certain events within a shorter time frame, decrease the reporting threshold of large private equity advisers, and revise the requirements for large private equity and liquidity fund advisers. If you remember a certain family wealth advisor and office in New Jersey that made headlines then you understand why the Mohammed Ali Rashid team supports smart regulation and disclosure. While we don't see this down in Miami, Florida or in Los Angeles, California this seems to be an issue focused with high net worth family offices and funds in the Tri-State area. Maybe one day it will be an issue for those trading on a Mars Stock Exchange or a SpaceX/Apollo trading exchange but for today its relegated to the New York region. For large hedge fund advisers, the current reporting will require them to submit Form PF within one (1) business day of a specific event that is considered a risk to the fund, the investors, and the financial system. These include events such as operations events, extraordinary losses to investments, serious counterparty and margin default events, redemptions and withdrawals, and significant changes in prime broker associations. This proposal also encompasses events such as fund termination, investment period termination, execution of secondary transactions, and a general partner's removal. The shortened reporting time is beneficial because it will provide the FSOC and the SEC with the most current information about specific events that pose a high risk of causing market instability and distressing qualifying funds. The shorter reporting time will allow for the implementation of immediate solutions that are the most effective at addressing the issue/s. The proposal also seeks to decrease the reporting threshold from $2 billion to $1.5 billion for private equity fund assets that are currently under management. The reduction in the threshold will help increase the number of large private equity advisers who will be required to report. The change in the metrics will require about 75% of advisers to disclose information through a report via Form PF. This portion of the proposal will also increase disclosure for other information such as fund strategies, CPCs (controlled portfolio companies) and their borrowings, restructurings and recapitalizations of portfolio companies, and use of portfolio company financing. while the Mohammed Ali Rashid team doesnt handle this type of capital if we did we would be glad to outline risks as proper risk control is proper insurance for the future. Another key area that the proposed amendment will change is in the reporting requirements imposed on large liquidity fund advisers. The new requirements will be similar to that imposed on money market funds and shall include disclosures regarding the shareholders of the fund and the disposition of non-maturing portfolios. An important advantage to this amendment is that it will provide the SEC with an enhanced idea of activities and events in short-term financing markets that benefit from the investment of liquidity funds and money market funds. With a more comprehensive view of these markets, the FSOC and the SEC will be at a better position to assess the markets and implement or facilitate the necessary actions to oversee activities. Other Comments The proposal will implement amendments that could lead to the collection of updated, current, broader, and more precise data from an increased range in terms of the number of reporting firms. The volatility of the market in early 2021, along with worldwide events that have impacted the market have made these changes that much more essential. The new reporting rules, however, will require more effort and time on the part of the firms who will have to work within a shorter timeline. The new rules will also require additional policies and procedures for monitoring, which could equate to potential cost. Some sectors believe that the proposed amendments are too stringent and will likely be modified before they are made effective. Overall we support this and welcome smart regulation. Thank you, -Mohammed Ali Rashid