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(Bloomberg) — Large hedge funds will have just three days to privately tell US regulators about extraordinary investment losses and major margin events under a new rule from the Securities and Exchange Commission.
The regulation, which a majority of the SEC’s five commissioners adopted on Wednesday, significantly ramps up oversight of the biggest hedge funds. Rather than quarterly snapshots, watchdogs would for the first time get an almost real-time look at major events at managers that oversee at least $1.5 billion in assets. Private equity firms will also face new reporting requirements.
The changes are part of a push by the SEC under Chair Gary Gensler to clamp down on the fast-growing private funds industry. In theory, the stepped-up reporting will let Wall Street’s main regulator, as well as the Treasury Department and other agencies in Washington, get a handle on swift-moving events that may pose systemic risks.
“Private funds have evolved significantly in their business practices, complexity and investment strategies,” he said. “Private funds today are ever more interconnected with our broader capital market.”
The SEC proposed in January 2022 allowing just one business day for hedge funds to disclose major events. The agency has dubbed these “trigger events” and, in addition to big losses, they can include things like significant changes to prime-brokerage relationships, available cash or counterparty defaults. Losses exceeding 20% in a short period would qualify, the regulator said.
Read More: Hedge Funds Face New SEC Disclosures as Gensler Cracks Down
Expanded oversight over private fund managers has been a long-time policy goal of Democratic lawmakers, including Massachusetts Senator Elizabeth Warren. But the push to speed up the now quarterly filings, known as Form PF, really picked up in the wake of the trading turmoil after the onset of Covid-19 and when retail investors plowed money into stocks such as GameStop Corp. in early 2021.
Closely Guarded Secrets
Hedge funds and private equity firms have consistently pushed back against any efforts by the SEC to expand the type of data they must confidentially disclose, arguing that it’s proprietary information that could fall into the hands of unauthorized users through a data breach or other slip-ups. The forms contain some of the private fund industry’s most closely guarded secrets and are handled by a very small number of agency staff.
Under the changes, private equity firms will also have to make faster disclosures for some trigger events, including the removal of a general partner and certain fund terminations. The changes also require large firms with at least $2 billion in assets under management to provide more data about their strategies, use of leverage, and a general partner’s performance compensation.
The agency’s three Democrats approved the plan, while its two Republican members voted in opposition.
Separately, the SEC approved changes to increase the data that public companies must disclose about their stock buyback programs. Investors will start getting quarterly or semiannually aggregated information on daily repurchase activity.
The SEC contends the changes will help investors figure out for themselves whether a company’s repurchases are being used to actually increase shareholder value or to benefit executives.
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