Form PF Could Have Been Worse, Lawyers Say

The latest regulatory requirement for buyout shops appears not to be as onerous as the industry had feared, lawyers who work with private equity firms told sister publication Buyouts Thursday.

Smaller registered private equity firms will be required to provide only limited information regarding size, leverage, investor types and concentration, liquidity, and fund performance. For larger firms—those with $2 billion or more in assets—reporting will focus primarily on the extent of leverage incurred by their funds’ portfolio companies, the use of bridge financing and their funds’ investments in financial institutions, according to the SEC. Form PF with this information will have to be filed annually.

Indeed, it appears the Securities and Exchange Commission has backed away from provisions that could have made compliance much more difficult in completing Form PF, such as a quarterly filing requirement. Still, the lawyers were cautious, noting that the SEC, voting Wednesday to adopt the rule for private funds, hasn’t actually published the text of the regulation or the forms themselves, but only a press release outlining their contents.

“It’s a little hard to tell what has been scaled back for PE firms and what hasn’t until we get the final form,” said Jason E. Brown, a partner at the Boston law firm Ropes & Gray LLP, who represents investment advisers to mutual funds, private equity funds, hedge funds and other investment vehicles.

Form PF will be the way that registered investment advisers report on their systemic risks. Firms with more than $150 million in private fund assets under management will be required to file the form. But the reports will be kept confidential by the SEC, not released to the public.

The new rules distinguish large private fund advisers from small ones, according to an SEC fact sheet. In the case of private equity, that dividing line is a firm with assets of $2 billion. And unlike large hedge funds and “liquidity funds,” which will be required to file quarterly, 15 days after a quarter’s end, private equity fund advisers, large or small, will be required to file only annually, 120 days after the end of their fiscal year.

Most advisers will be required to begin filing Form PF following the end of their first fiscal year or fiscal quarter, after Dec. 15, 2012. Those with $5 billion or more in assets must begin filing after June 15, 2012. Buyout shops are expected to file their Form ADV documents, to comply as registered investment advisers, by March 30, 2012.

“It seems they got the message that valuation is not as simple as for firms with publicly traded securities,” Brown said.

“My own feeling is that Form PF is less onerous in the private equity world than people had feared, but still more onerous than it needs to be,” said Michael Harrell, co-chair of the private equity funds and investment management groups at the New York law firm Debevoise & Plimpton LLP.

The agency originally had indicated it would impose tighter filing requirements on buyout firms, but “the SEC recognized the difficulties of requiring frequent valuations and the small benefit of obtaining portfolio information frequently because the portfolio doesn’t change frequently,” Harrell said. And considering the difficulty of valuing private assets, compared to publicly traded shares, “these timing changes were necessary to make it possible to comply.”

Steve Bills is a senior editor at Buyouts Magazine. Any opinions expressed here are entirely his own. Follow him on Twitter @Steve_Bills. Follow Buyouts tweets @Buyouts. For information on how to subscribe, contact Greg Winterton at greg.winterton@thomsonreuters.com.