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

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.