Harnessing Next-Generation Technology for Seamless Form PF Compliance

Meaningful growth, market uncertainty, and the recent banking crisis have brought private equity into the regulatory spotlight. From regulating ESG and management fees to enforcing new marketing and valuation guidelines, the SEC has introduced various regulatory initiatives to monitor “systemic risk” and protect investors. One of the SEC’s most recent actions includes implementing amendments to Form PF, which enhance reporting guidelines for hedge fund and private equity managers.

This article assesses the implications of Form PF for private equity advisers, explores how GP’s data collection workstreams will be affected, and the benefits of leveraging technology solutions for compliance.

Quarterly Reporting Requirements for All Private Equity Firms

The new guidelines outline added annual and quarterly reporting requirements for private equity advisers, including providing disclosures on secondary transactions, clawbacks, geographic exposure, and more.

The new reporting requirements for all private equity firms are triggered by specific events, including:

  • An adviser-led secondary transition; or
  • An investor election to remove a fund’s general partner or to terminate a fund’s investment period.

Advisers must report these events quarterly — within 60 days after the end of the relevant quarter.

New Reporting Requirements for Private Equity Firms With More Than $2 Billion in AUM

In addition to the quarterly requirements for all firms, the new amendment proposes additional annual reporting requirements for firms with more than $2 billion in AUM. Qualifying firms must now provide yearly reports related to numerous conditions and events, including:

  • Clawbacks: Large private equity firms must report information regarding LP and GP clawbacks above 10 percent of a fund’s aggregate capital commitments, including the effective date and reason for the clawback.
  • Private equity fund investment strategies: Advisers must select from a list of strategies by percent of deployed capital, even if the options do not fully represent the characterization of their fund’s investment strategies.
  • Fund-level borrowing: Firms must report any fund-level borrowing or other cash financings available to the fund, the total dollar amount available, and the average amount borrowed over the reporting period.
  • Default events: Firms must provide granular information on default events, including whether a payment default is of the private equity fund or a controlled portfolio company (CPC).
  • Bridge financing to CPCs: Firms must report on the identity of the institutions providing bridge financing to CPCs and the amount provided.
  • Geographic breakdown of investments: Firms must report on the geographical breakdown of their investments, including all countries where a fund has an exposure of 10 percent or more of its net asset value.

How Form PF’s Equity Reporting Requirements Impact GPs

The increased scope of Form PF creates a handful of additional reporting and data collection workstreams and compliance considerations for GPs.

As many GPs look to continuation vehicles, amid a volatile exit environment, new quarterly reporting requirements will likely burden back-office teams, who must now report on secondary transactions more regularly. Annually reporting on granular information related to geographic exposure, fund-level borrowing, default events, and more poses additional challenges, given the complexity of collecting opaque and disparate private market data.

Additionally, GPs have a relatively short time horizon to comply with new reporting requirements. Private equity advisers must determine how these regulatory changes affect their reporting workstreams, adjust their internal infrastructure to track “triggering” events, and implement appropriate data-collection processes to ensure a smooth transition to the updated form.

Firms relying on legacy systems for tracking granular and aggregate fund and portfolio company information may face productivity and compliance challenges. Data collection templates and workstreams in Excel lack essential auditability — data traceability ends at the template level, and firms will struggle to pinpoint a data point’s source. In the case of an audit, this would prove problematic. The manual nature of this approach also lacks efficiency and will likely detract from value-creation activities.

Next-generation technology solutions offer crucial efficiency, automation, and reliability for private equity data management. Through aggregating data into a central repository, firms can enhance their data integrity, implement approval workflows, and trace the flow of information to a granular level. To confidently identify the methodology of calculations or the origin of data points is a significant benefit to firms in their compliance efforts. Automating reporting processes also serves firms by reducing the time spent compiling quarterly and annual reports.

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