SEC steps up disclosure demands on hedge, PE funds

Hedge fund managers and other private fund advisers must report extreme events that could stress markets or harm investors under new rules adopted by U.S. regulators today.

The U.S. Securities and Exchange Commission (SEC) has revised the regulatory reporting requirements for investment advisers to private funds in an effort to improve the systemic risk monitoring ability of the U.S. Financial Stability Oversight Council (FSOC), and enhance regulatory oversight and investor protection in the sector.

Among other things, the rules will require large hedge funds (with at least US$1.5 billion in assets) and private equity funds to report events that could signal stress at the fund, or the risk of investor harm — such as “extraordinary investment losses,” significant margin calls and defaults, operational issues, and large redemptions.

Additionally, large private equity funds (with over US$2 billion in assets) would have to report developments, such as a general partner being removed, certain fund termination events, and secondary transactions.

“Private funds today are ever more interconnected with our broader capital markets. They also nearly have tripled in size in the last decade. This makes visibility into these funds ever more important,” said SEC chairman Gary Gensler in a release.

The reforms to private funds’ reporting requirements “will enhance visibility into private funds and help protect investors and promote financial stability,” he added.

The changes to current reporting requirements take effect in six months, and additional amendments will be in force in one year.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.