Hedge funds to share more on their strategies under SEC rule

U.S. regulators will begin requiring hedge funds to confidentially share more information about their investment strategies.

New rules approved on Thursday will require firms to provide more details with watchdogs, including investments, borrowing and counterparty exposure. The Securities and Exchange Commission and Commodity Futures Trading Commission described the new regulations, which were proposed in 2022, as a way to better keep tabs on risk in the financial system.  

The expansion of confidential filings that big managers must submit quarterly with the SEC and CFTC is one of the biggest increases in regulation for the private-fund industry in a decade. It also marks the latest move by Wall Street’s main regulators to increase oversight of the private-funds industry. 

While specific data included on the so-called Form PF isn’t made public, regulators can use it in enforcement actions and to assess broader market risks. The information collected by the regulators will bolster efforts by the Financial Stability Oversight Council, according to the SEC. 

SEC Chair Gary Gensler has repeatedly said that regulators need the additional data to keep pace with the growth of the private-funds industry. Funds have grown much larger and their structures more complex since the confidential filings were first required after the financial crisis, according to Gensler.

Regulators “have identified gaps in the information we receive from private fund advisers,” he said in a statement on Thursday. “The adoption also furthers investor protection efforts.”

The new rules apply to hedge funds with net asset values of at least $500 million. They will have to share more about operations and strategies and generally report separately on each component of a fund. 

The rule also eliminates a requirement for large managers to report aggregated information about the hedge funds they advise, which the SEC said “can obscure the data about hedge funds, including by masking the directional exposures of individual funds.”

The SEC and CFTC, which oversees funds focused on derivatives, also announced an agreement to share information from the forms.