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