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Authored by: Jay Dubow, James Epstein from law firm Troutman Pepper.

On January 26, the SEC approved proposed amendments to Investment Advisers Act Rule 204(b)-1 and Form PF to require prompt reporting of certain extraordinary events that may signal distress or market instability. The proposals are material and could significantly impact private fund advisers, including smaller advisers falling below the current threshold for large reporters. In a shift from prior SEC practice of 60 days, the comment period for the proposal is only 30 days from the date of publication in the Federal Register (which has yet to occur as of the date of this advisory).

Notably, the proposal would reduce the reporting threshold for large private equity fund advisers from $2 billion to $1.5 billion in assets under management. Chair Gary Gensler hopes this change will recalibrate the scope of reporting by fund managers back to the proportion of the industry covered (based on committed capital) when Form PF was initially adopted, which represents about 75% of the assets under management.

Specifically, the proposal would require large hedge fund advisers to report within one business day:

• certain extraordinary investment losses (loss equal to or greater than 20% of a fund's most recent net asset value over a rolling 10 business day period);

• significant margin and counterparty default events (e.g., a cumulative increase in margin of more than 20% of the reporting fun......................

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