Significant Amendments to Private Fund Adviser Reporting on Form PF

Diane Blizzard is a Partner and Radhika Kshatriya is an Associate at Kirkland & Ellis LLP. This post is based on a Kirkland & Ellis memorandum by Ms. Blizzard, Ms. Kshatriya, Nick Hemmingsen, Daniel Kahl, Scott A. Moehrke, and Reed T. Schuster.

On May 3, 2023, the SEC voted to adopt significant amendments to Form PF on a 3-2 vote. [1] Form PF requires SEC-registered investment advisers to file reports with the SEC regarding private funds managed by such advisers and allows the Financial Stability Oversight Council to assess systemic financial risk to the U.S. financial system. Currently, reports on Form PF for private equity fund advisers (usually including real estate and private credit within this category) are filed annually. [2] Unlike many other SEC filings, Form PF filings are not public.

The new SEC Form PF requirements include:

  • new quarterly event-based reporting for certain significant events involving all private equity fund advisers; and
  • new categories of information for “large private equity fund advisers” (advisers that manage over $2 billion in private equity fund AUM) on fund strategies, fund-level borrowings and fund general partner (“GP”) and limited partner (“LP”) clawbacks, as well as certain expanded information for existing categories.

For the new event-based reporting requirements, the effective/compliance date is six months after the date of publication in the Federal Register. For the amendments to the existing sections of Form PF, the effective/compliance date is one year after the date of publication in the Federal Register (meaning such amendments will not impact the annual Form PF filings for advisers with a December fiscal year end until Form PF filings due in 2025).


Florida Passes Farthest-Reaching Anti-ESG Law to Date

Leah Malone is a Partner and Emily B. Holland is Counsel, at Simpson Thacher and Bartlett LLP. This post is based on a Simpson Thacher & Bartlett LLP memorandum by Ms. Malone, Ms. Holland, Carolyn S. Houston, and May Mansour. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto Tallarita; Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee (discussed on the Forum here) by Max M. Schanzenbach and Robert H. Sitkoff; and Exit vs. Voice (discussed on the Forum here) by Eleonora Broccardo, Oliver Hart and Luigi Zingales.

On May 2, 2023, Florida’s Governor Ron DeSantis signed into law a bill designed to block the consideration of ESG factors in investment decisions. Going further than similar laws enacted in other states, [1] with the passage of House Bill 3 [2] (“HB 3”), Florida presents itself as a new standard-bearer in America’s anti-ESG movement. In requiring that investment decisions (and proxy voting decisions) for state pension assets be made on the basis of “pecuniary factors” only, the law echoes bills already passed in other states. But HB 3 also limits investment decisions for local governments, trust funds, and the state’s CFO. It prohibits the issuance of any ESG bonds in the state, limits state contracting, redefines what it means to be a qualified public depository, and imposes new external communications disclaimer requirements.

Below, we summarize the key provisions of HB 3 and offer a comparison against some of the anti-ESG laws on the books in other states. [3]


Modernization of Beneficial Ownership Reporting Rule Proposal

Jonathan H. Gaines and David S. Rosenthal are Partners and Christopher Soares is an Associate at Dechert LLP. This post is based on their Dechert memorandum. Related research from the Program on Corporate Governance includes The Law and Economics of Equity Swap Disclosure (discussed on the Forum here) by Lucian Bebchuk; The Law and Economics of Blockholder Disclosure (discussed on the Forum here) by Lucian Bebchuk and Robert J. Jackson Jr.; and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon P. Brav, Robert J. Jackson Jr., and Wei Jiang. 

The U.S. Securities and Exchange Commission (the “SEC”) announced on April 28, 2023, that it has reopened the comment period for its February 2022 Modernization of Beneficial Ownership Reporting rule proposal (the “Proposed Rule”). As discussed in our OnPoint on the proposal, the Proposed Rule would amend the beneficial-ownership reporting requirements under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, among other changes, by accelerating the filing deadlines for both Schedule 13D and Schedule 13G. The public comment period will now remain open until June 27, 2023, or until 30 days after the date of publication of the reopening release in the Federal Register, whichever is later.


Weekly Roundup: May 19-25, 2023

More from:

This roundup contains a collection of the posts published on the Forum during the week of May 19-25, 2023

The State of Climate Investing

Anatomy of a Run: The Terra Luna Crash

Unlocking the Investment Potential of “S” in ESG

Importance of Special Litigation Committees in Maintaining Board Control Over Derivative Litigation

Diversity, Equity, and Inclusion

Venture Predation

2022 Asset Stewardship Report: Engagement and Voting

2022 Asset Stewardship Report: Engagement and Voting

Benjamin Colton is Global Head of Asset Stewardship, and Michael Younis is Vice President of Asset Stewardship at State Street Global Advisors. This post is based on their SSGA memorandum.

How We Engage

Our Asset Stewardship team has developed our Global Issuer and Stakeholder Engagement Guidelines to increase the transparency of our engagement philosophy, approach, and processes. This protocol is designed to communicate the objectives of our engagement activities and to facilitate a better understanding of our preferred terms of engagement with our investee companies. The protocol explains key engagement processes including:

  • Methodology for developing our annual engagement strategy
  • Information to include in engagement request emails
  • Information on how to request R-Factor scores
  • Our guidelines for engaging with investee companies
  • Our guidelines for engaging with activist investors or investors directly connected
    to Vote-No campaigns or shareholder proposals
  • Investor engagement protocol guidance

We review our Global Issuer and Stakeholder Engagement Guidelines annually as part of our strategic review process to ensure that our interactions with companies remain effective and meaningful. This includes reviewing indicators in our screening models and assessing emerging issues and trends.

Additionally, we take into account individual market nuances when evaluating practices or engaging on certain issues, as well as market practices and norms for engagement.


Venture Predation

Matthew Wansley is an Associate Professor of Law, and Samuel Weinstein is a Professor of Law at Benjamin N. Cardozo School of Law. This post is based on their recent paper, forthcoming in the Journal of Corporation Law.

Uber once seemed poised to revolutionize urban transportation. Instead of hailing a cab in the street, you could order a ride on a mobile app. Uber’s fares were surprisingly cheap—often much cheaper than taxis. Yet drivers seemed to be making more with Uber than they could by driving a cab. Uber’s low fares attracted riders, and its relatively high pay attracted drivers. Uber grew quickly, taking market share from taxi companies, and forcing some into bankruptcy. It seemed that Uber had found cost efficiencies that had eluded hidebound taxi companies. But in hindsight it has become clear that Uber’s low fares and comparatively attractive driver pay were made possible only by massive venture capital subsidies. From the start, Uber racked up heavy losses. In the past few years, Uber fares have increased steadily, but the company still has not reached sustainable profitability. If its business model never added up, how did Uber come to dominate the market for urban transportation? Venture predation.

Predatory pricing is a strategy that firms use to suppress competition. The predator’s prey are its competitors. The predator aims to drive them out of the market. The strategy has two steps. First, the predator prices its product below its own costs, losing money, but attracting more customers and increasing its market share. Unable to tolerate the losses necessary to compete, the prey exit the market. Second, once the predator dominates the market, it raises its prices to supracompetitive levels, generating monopoly profits that let it recoup the cost of predation.


Diversity, Equity, and Inclusion

Alex Edmans is a Professor of Finance, Academic Director, Centre for Corporate Governance at London Business School, Caroline Flammer is a Professor of International and Public Affairs and of Climate at Columbia University, and Simon Glossner an Economist at the Federal Reserve Board in the Research and Statistics Division. This post is based on their recent paper. Related research from the Program on Corporate Governance includes Politics and Gender in the Executive Suite (discussed on the Forum hereby Alma Cohen, Moshe Hazan, and David WeissWill Nasdaq’s Diversity Rules Harm Investors? (discussed on the Forum here) by Jesse M. Fried; and Duty and Diversity (discussed on the Forum here) by Chris Brummer and Leo E. Strine, Jr.

Companies, investors, policymakers, and wider society are paying increased attention to diversity, equity, and inclusion (“DEI”) within firms. DEI initiatives have two motivations – that DEI improves a company’s long-term financial performance, and that it contributes to societal goals. Under both financial and social motives, the relevant measures of DEI are holistic. New ideas, and thus superior financial performance, stem from cognitive rather than purely demographic diversity. Similarly, social outcomes stem from providing opportunities to underrepresented groups across all areas, such as demographic, disability status, socioeconomic, and educational. Moreover, both goals require not only diversity but also equity and inclusion. Hiring minorities to tick a box, but failing to ensure that they can thrive and be themselves at work, will achieve neither the financial benefits of cognitive diversity nor the social outcomes of meaningful employment.

However, given measurement challenges, DEI metrics often focus narrowly on demographic diversity. For example, legal quotas or investor guidelines typically capture only the number of women on the board. Perhaps due to the narrowness of such a measure, academic research on the link between boardroom gender diversity and firm performance typically finds negative or insignificant effects. Similarly, company reports often include the percentage of females or ethnic minorities in the wider workforce, but neither measure captures cognitive diversity, nor equity and inclusion.


Importance of Special Litigation Committees in Maintaining Board Control Over Derivative Litigation

Gail Weinstein is Senior Counsel, and Scott B. Luftglass and Peter L. Simmons are Partners at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. Luftglass, Mr. Simmons, Philip RichterSteven Epstein and Warren S. de Wied and is part of the Delaware law series; links to other posts in the series are available here.

There has been strong focus on derivative suits in recent years in the context of M&A-related fiduciary claims, as well as Caremark oversight claims and COVID-19-related claims, being asserted by stockholders against corporate directors and officers on behalf of the corporation. In In re Baker Hughes, a GE Company, Deriv. Litig. (April 17, 2023), the Delaware Court of Chancery granted a motion to terminate a derivative suit brought against the former directors of Baker Hughes Incorporated that challenged the fairness of the company’s merger with an affiliate of its controller. The decision serves as an important reminder to boards that a properly formed and functioning special litigation committee (“SLC”)—comprised of independent and disinterested members, which acts in good faith and reaches reasonable conclusions—is a potent tool for a corporation to retain control over derivative claims, even when the plaintiffs have excused demand on the board to bring the litigation based on the board’s non-independence or conflicts.


Navigating the Current ESG Landscape: Recommendations for the Board and Management

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton and Carmen X. W. Lu. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto TallaritaDoes Enlightened Shareholder Value add Value (discussed on the Forum here) and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) both by Lucian Bebchuk, Kobi Kastiel, Roberto Tallarita; and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine, Jr.

In recent months, ESG has emerged as a domestic political battleground with businesses and their leadership increasingly caught in the crossfire. Opponents of ESG have coalesced at the state level, enacting legislation targeting the consideration of ESG factors in the investment decisions of state pension fiduciaries and proxy advisors. Such legislation has been buttressed by letters and opinions from state attorneys general and treasurers questioning the legality of investment decisions that consider ESG factors. Meanwhile, companies continue to be inundated with shareholder proposals that overwhelmingly seek the expansion of ESG commitments. Such proposals have been supplemented by growing regulatory demands on companies to identify, disclose and mitigate ESG risks. And when companies have ventured to take a public stance on ESG issues, several have attracted national controversy and exposed deep rifts among their different stakeholders.

Today’s boards and management teams face a challenging balancing act as stakeholders grow more divided on ESG. While each company’s circumstances vary, we believe there are two guiding principles that boards and management should keep in mind: (1) approach important ESG issues as one would approach other important business decisions or risks and (2) recognize that political pressure on ESG is a risk that needs to be managed (rather than a missive to be obeyed).


Murder on the City Express – Who is Killing the London Stock Exchange’s Equity Market?

Brian Cheffins is the S. J. Berwin Professor of Corporate Law, and Bobby V. Reddy is an Associate Professor of Corporate Law at the University of Cambridge. This post is based on their recent paper, forthcoming in The Company Lawyer.

There has been much debate surrounding the decline of the U.S. public company.  As private corporations have found it easier in recent years to raise capital from the private markets, the number of public firms listed on U.S. exchanges has plummeted.  Why tap public investors for finance, and become exposed to burdensome regulation and the vicissitudes of the public markets, when growth can be sustained with private capital?

The U.K. has also seen a decline in the number of traded companies on the London Stock Exchange, alongside a similar rise in private capital.  However, the London Stock Exchange’s path differs markedly from its U.S. peers on at least one significant measure – the market capitalization to Gross Domestic Product (“GDP”) ratio.  As we underscored in a previous paper, while the U.S. exchanges have seen a consistent rise in the aggregate market capitalization to GDP ratio since at least 2017, the equivalent metric for the U.K. has remained stagnant at best.  A recent paper by Mark Roe and Charles Wang further notes that U.S. public firms have seen rising sales, profits, investment and employment as a proportion of GDP over the last thirty years.  One could correspondingly argue that the U.S. public firm has never been healthier.  That cannot be done with the U.K.  Whereas in the not too distant past, the U.K.’s market capitalization/GDP ratio consistently trended higher than the U.S.’s, it now lags far behind, with other countries, such as France, now catching-up.


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