Additional Disclosures on Secondary Transactions, GP Terminations, and Clawbacks

The SEC on May 3, 2023, voted to adopt certain amendments to the reporting requirements under Form PF. Of particular interest to investors, the amendments require additional disclosure by all private equity fund advisors with respect to (i) GP led secondary transactions, and (ii) removal of the GP or the election to terminate the fund’s investment period. In addition, large private equity fund advisors (those with $2 billion in assets under management) will need to disclose clawbacks. 

The reporting requirements “are designed to enhance the Financial Stability Oversight Council’s (“FSOC”) ability to monitor systemic risk as well as bolster the SEC’s regulatory oversight of private fund advisers and investor protection efforts.” The amendments will be effective (i) six months after the date of publication in the Federal Register for new Section 6 (secondary transactions and termination disclosures) and twelve months after publication in the Federal Register for the clawback disclosures.

We briefly summarize each below and will issue a more detailed alert in the near future as additional guidance is available.

Secondary Transactions. Private equity fund advisors will need to report quarterly any advisor led secondary transaction. An advisor led transaction is defined as:

“any transaction initiated by the adviser or any of its related persons that offers private fund investors the choice to: (1) sell all or a portion of their interests in the private fund; or (2) convert or exchange all or a portion of their interests in the private fund for interests in another vehicle advised by the adviser or any of its related persons.”

Specifically, the advisor will need to disclose (i) the closing date of the transaction, and (ii) a description of the transaction.

Removal of the GP or Election to Terminate the Investment Period. All private equity fund advisers will need to report “the removal of a general partner or election to terminate the investment period or fund item as an event reporting item.” The advisor will need to disclose (i) the effective date of the removal event, and (ii) a description of the removal event.

Clawbacks. Large private equity funds advisors will need to disclose annually (i) all GP clawbacks, and (ii) LP clawbacks in excess of an aggregate amount equal to 10 percent of a fund’s aggregate capital commitments. A “general partner clawback” is defined as

“any obligation of the general partner, its related persons, or their respective owners or interest holders to restore or otherwise return performance-based compensation to the fund pursuant to the fund’s governing agreements.” 

The advisor will need to disclose (i) the effective date of the clawback, (ii) the type of clawback (GP or LP) and (iii) the reason for the clawback.

We will continue to monitor these amendments and anticipate more guidance will be forthcoming in the near future.