This week, the U.S. Securities and Exchange Commission voted in favor of proposing rule amendments that would expand reporting requirements for private funds such as hedge funds and private equity funds. While private funds are already required to disclose certain information on predetermined timelines via Form PF, the proposed rule changes would tighten those rules further.
Notably, private fund advisers will need to file reports within one business day when a notable event occurs, such as an event that could harm investors or signal an overall decline in financial markets. Prior to the suggested rule change, most firms and private funds were only required to report on a quarterly or annual basis. For individual investors, these rule changes may make it easier to react to changes in your investment portfolios. If you’re looking for a way to take better control of your investments, a financial advisor may be able to help. Check out SmartAsset’s free online advisor matching tool today.
What Is Private Fund Reporting?
Large hedge funds, private equity funds and many financial firms have long been required to disclose certain information to the public. These entities do so by filing forms, such as a Form PF or a Form ADV. These forms disclose important information to investors and to the public about total asset under management, investment styles, managers and even the performance of the fund.
These disclosures are a standard practice. Some forms, like Form PF and Form ADV are mandatory for certain types of financial entities. At the same time, firms often choose to disclose additional information about their practices as a way of being transparent with their investors. Disclosing and reporting information are already very standard practices in the private fund industry.
What Are the Proposed Rule Changes?
While private fund managers and advisors are no stranger to reporting and disclosing information, the rule changes have the potential to drastically change how these funds report on and convey information to investors and to the public. Instead of just having to file quarterly or annually, the rule change will require that firms file a report within one business day of events that indicate significant stress that could harm investors. They must also do so when there are signals of risk in the broader financial ecosystem.
Additionally, the threshold for requiring a private equity firm to file such reports will decrease. Originally, firms with more than $2 billion in assets under management needed to report. The SEC wants to lower that to $1.5 billion. The new rules would also require more information than has been required in the past, such as investment strategies, use of leverage, borrowing, capital structure and more.
Will the New Rules Affect Individual Investors?
Luckily for individual investors, there’s mostly good news to go around. As an individual investor, you won’t have to amend your investment practices if you don’t want to. These rule changes apply entirely to large private equity funds and hedge funds.
You’ll also be in better shape as an individual investor, as you’ll have more information at your fingertips. This can apply to current hedge fund or private equity fund investors as well as potential investors. Since the new rules require reporting that can be accessed by anyone, you’ll be able to take a deeper dive into the specific details of a given fund before deciding to invest. If you’re already invested, you’ll likely have the opportunity to learn even more about the fund, especially during period of market volatility.
How to Prepare
As an individual investor, there isn’t much you need to do to prepare for these rule changes. You can rest easy knowing that if the fund you’re invested in meets the reporting requirements, you’ll have access to lots of important information about the fund itself. It’s important to be cognizant of the fact that under these new reporting standards, you’ll likely be hearing from qualified funds a lot more often. Make sure you do the due diligence to figure out what is and what isn’t important information. A financial advisor can often help with this process as well.
The proposed SEC rule changes surrounding private fund reporting have the potential to shake up the market. If private funds are required to disclose market volatility with such a short turnaround time, investors will have a much more regular stream of information at their disposal to help them decide whether to stay invested in a fund. While private fund managers might view the requirements as overbearing an unnecessary, there’s no doubt that with the new rules, individual investors will be better informed about how their private investment funds are performing during periods of volatility.
Tips for Investing
- Investing your own money isn’t always easy, and it can be helpful to have someone in your corner. A financial advisor may be able to play that role. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you’re in charge of managing your own money, SmartAsset has you covered there too. Check out some of our free online resources to help improve your investment strategy. For example, get started with our investment calculator today.
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