Better Markets filed a comment letter in response to the Securities and Exchange Commission’s and Commodity Futures and Trading Commission’s joint proposal to strengthen the quantity and quality of information reported in Form PF, the principal regulatory tool for gathering information about private funds.
Why It Matters. A key reform included in the Dodd-Frank Act passed by Congress in the aftermath of the Financial Crisis of 2008 was to require large private funds, namely hedge funds, to periodically report certain information to regulators in Form PF. However, in the more than ten years since the original Form PF rule was finalized, both the number of private funds and the amounts and types of assets being invested in those funds have seen tremendous growth. For example, the value of assets reported on Form PF has more than doubled from $5 trillion in 2013 to $12 trillion in 2021, and the number of private funds reporting on Form PF has increased by more than 50 percent. Similarly, the investment strategies and fund structure complexity of these private funds has evolved, as well, and has led to hedge funds being in the middle of significant episodes of market stress in recent years.
What We Said. During the past ten years, Form PF has provided the SEC/CFTC and FSOC with important insight into the basic operations and strategies used by large private funds for use in assessing systemic risk and protecting investors. However, with nearly ten years’ experience in evaluating Form PF data, it is necessary and appropriate for regulators to recalibrate both the quantity and quality of data being reported in Form PF given the evolution of the private funds industry over the past decade. The amendments to Form PF in the proposal would address key information gaps identified by the Commissions and FSOC to better protect investors and monitor systemic risk within our financial markets. Recent periods of market stress, including the market turmoil caused by the onset of the COVID-19 pandemic and resulting lockdowns in March 2020, and the trading frenzy surrounding GameStop and other so-called meme stocks in January 2021, have again highlighted the importance of having more granular information on significant market participants, including private funds with significant interconnectedness, during periods of financial market stress.
Bottom Line. Better Markets supports the joint rule proposal by the SEC and CFTC to address information gaps that have evolved since Form PF was originally implemented nearly ten years ago. While the industry has grown and evolved over the past ten years, the data required to be submitted to the Commissions via Form PF should evolve as well. The joint rule proposal rightfully focuses on recalibrating the quantity and quality of the data being reported to enable the SEC and CFTC to carry out its statutory duty to protect investors and assess systemic risk.
Read our full Comment Letter here or click the button below.