SEC Issues Proposed Investment Adviser Reporting And Disclosure Rules

In the wake of the financial crisis, the US Securities and Exchange Commission adopted detailed data reporting rules for private funds on both Form ADV (2010) and Form PF (2011). In its continuing push to gather more asset management industry data, agency officials have been hinting for months that portfolio-level reports on investment adviser separate accounts and registered investment companies would be next. The agency now intends to close these perceived gaps through a pair of rule proposals that it announced on May 20, 2015.

What does the SEC do with the data it collects? The agency says better data allows it to more effectively monitor industry trends and assess risk, focus its examinations, conduct investigations and, when necessary, bring enforcement actions. Collecting more industry data also serves the SEC's political interest in protecting its position against other financial regulators. Lest anyone miss that point, the agency opens the registered investment company reporting proposal with the unqualified assertion that "the Commission is the primary regulator of the asset management industry."

This alert describes the proposed separate account reporting requirements, which the SEC packaged with a series of related investment adviser disclosure requirements, a proposed codification of SEC staff positions that provide for so-called "umbrella registrations" by closely related advisory firms, and proposed recordkeeping rule changes for communications that include statements of investment performance. A companion alert describes the SEC's proposed registered investment company reporting rules.

The SEC is soliciting comments on its rulemaking proposals. Comments are due within 60 days following publication of the proposals in the Federal Register.

New Separate Account Data Reporting

Currently, the SEC collects only limited data from investment advisers regarding their separately managed client accounts.1 Under proposed amendments to Form ADV, which is the SEC's registration form used by investment adviser firms,2 an SEC-registered adviser would provide certain aggregate information on separately managed accounts it advises, including information on regulatory assets under management (RAUM), types of investments, and use of derivatives and borrowings. For purposes of the new reports, the SEC will consider as a separately managed account any advisory account that is not a pooled investment vehicle.

The proposed amendments would capture information that the SEC says is comparable to information the agency already collects on Form PF regarding private funds.3 Specifically, registered investment advisers are proposed to:

Report the approximate percentage of separately managed account RAUM invested in ten broad asset categories, such as exchange-traded equity securities and US government/agency bonds. Identify any custodians that account for at least 10% of separately managed account RAUM and the amount of the adviser's RAUM attributable to separately managed accounts held at each custodian. Report on the use of borrowings and derivatives in any separately managed account having a net asset value of at least $10 million, as follows. All advisers would report the percentage of these separately managed account assets held in derivatives. Advisers with at least $150...