The SEC is now requiring alternative investment fund managers to provide a lot more details on their operations.

The SEC unanimously approved the new documentation called Form PF, with minor concessions to alternative investment funds who complained the requirements would impose unnecessary costs. The new documentation still requires the approval of the Commodity Futures Trading Commission which is expected to come in a few days.

Under the SEC's original proposal, issued in January, all hedge fund and private equity firms with at least $1 billion in assets to make the confidential disclosures quarterly. The threshold is now $1.5 million in assets for hedge fund managers and $2 billion for private equity funds.

All hedge and private equity fund firms with at least $150 million in assets will now be required to make some disclosures to the SEC. The information reported on Form PF would vary depending on the adviser. All advisers would be required to fill out Section 1 of the form to provide identifying information, as well as basic information such as total assets under management and the aggregate notional amount of any derivative positions.  Additional details included in this section would cover investment strategies, the use of computer driven algorithms, and any significant counterparty exposure. 

Only the largest hedge funds and private equity funds will be subject to the most  stringent disclosure requirements. Large private fund advisers would have to fill out Section 2 of Form PF to disclose the market value of assets invested on a short- and long-term basis in different securities and commodities, the duration of fixed income portfolio holdings with details about interest rate sensitivities, and the turnover rate of aggregate portfolios.  A geographic breakdown of investments held by the fund would also be required. 

Section 4 of form PF would require advisers to large private equity funds to report the funds’ borrowings, guarantees, and leverage of the portfolio companies in which the fund invests.  Advisers would report a weighted average debt-to-equity ratio of controlled portfolio companies in which the fund invests.

The largest  firms—those with at least $5 billion in assets—will have to begin reporting after June 15 of next year. Smaller firms will begin making their disclosures after Dec. 15, 2012.

Hedge funds would test these thresholds daily while private equity funds would test quarterly. These threshold tests are not applied on an individual fund level but rather on an aggregate level of assets under management by the adviser.

-- This article first appeared on Securities Technology Monitor.



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