SEC Staff Report Provides Private Funds Industry with Stats and Trends

The SEC released a report collected from Form PF and Form ADV filings that provides statistics and trends about the private funds industry.

The staff report includes statistics about the distribution of borrowings, an analysis of hedge fund gross notional exposure to net asset value and a comparison of average hedge fund investor and hedge fund portfolio liquidity.

Additionally, the report discusses the following categories of information about hedge funds and advisers:

  • number of funds and advisers;
  • gross and net assets:
  • aggregate assets by fund type over time;
  • borrowings;
  • parallel managed accounts;
  • fund domiciles and adviser main offices;
  • beneficial ownership;
  • derivatives;
  • high frequency trading;
  • information reported by large hedge fund advisers:
  • economic leverage;
  • industry concentration;
  • portfolio turnover;
  • region and country exposure;
  • qualifying hedge fund specific information:
  • gross exposure by strategy;
  • liquidity;
  • central clearing;
  • liquidity fund specific information; and
  • private equity fund specific information.

Chair Mary Jo White noted in relevant remarks at the MFA Outlook 2015 Conference that “the public availability of aggregated information should help to address persistent questions, and to some degree misconceptions, about the practices and size of the private fund industry.”

Chair White also highlighted the following industry trends and practices in the findings of the report: (i) the total notional value of derivatives reported on Form PF, while increasing, has decreased relative to total net assets; (ii) more than half of all large hedge fund advisers report aggregate economic leverage less than two and a half times their total reported hedge fund net assets; and (iii) the data indicates that fewer than 100 reporting hedge funds, representing less than $70 billion in combined net assets, manage some portion of their funds using high-frequency trading strategies.

Lofchie Comment: The report should lend further support to the notion that the activities of the private fund industry do not present major threats to the stability of the economy, and that FSOC, which is dominated by the banking regulators, should dial back the level of rhetoric as to the need to impose controls over investment decisions made by private funds.