The U.S. Securities and Exchange Commission will decide on Wednesday whether to adopt new rules for advisors to hedge funds and private equity funds aimed at increasing transparency, competition, and efficiency in the $25-trillion marketplace.
The SEC will vote on a proposal to update so-called Form PF, which was put in place following the financial crisis of 2008-2009 to monitor risks in the private fund sector, to boost the quality of disclosures by large funds about their investment strategies and leverage.
"Since the SEC put in place Form PF 12 years ago, a lot has changed," SEC Chair Gary Gensler said at a conference held by the Managed Funds Association on Tuesday.
"The proposal's new transparency would relate to fees, expenses, performance, and side letters," he said.
The rule changes would require private fund advisers, such as private equity firms and hedge funds, to disclose quarterly details about their fees and expenses, in a bid to shed light on the rapidly growing market sector.
Large hedge fund advisors would also have to inform financial regulators on certain events that may indicate significant stress or otherwise signal for systemic risk and investor harm, which could include significant margin calls of counterparty defaults, based on a 2022 SEC proposal.
An SEC-registered fund adviser, under the proposal, would also have to obtain annual audits for each private fund under management, as well as disclose so-called "fairness opinions" that summarize certain business relationships.
In their annual reports, the advisors would be required to include information relating to their strategies, use of leverage, and clawbacks of a general partner's performance compensation.
The SEC is also working with the Commodity Futures Trading Commission on another proposal that would, among other things, expand the reporting requirements for large hedge fund advisers.
