The Public Disclosure of Private Fund Information

Date: October 26, 2015

On October 16, the SEC issued its first Private Fund Statistics report, “a report that provides private fund industry statistics and trends, reflecting aggregated data reported by private fund advisers on Form ADV and Form PF.” 

The report provides more in-depth data than the brief and rather unsatisfying information the SEC publishes in its Private Fund Annual report. The new 41 page report contained some interesting information and even a surprise or two.

It appears that the SEC may need to refine a few categories to get meaningful information. A little over 4,000 of the 24,725 private funds were of the type “Other Private Fund”. Of the 14 different types of investor categories available to Form PF filers, the catch all “Other” holds the number four spot with 11.4% of net asset value. In more impressive fashion, “Other” is also the second most used investment strategy for Qualifying Hedge Funds.

Other data points seemed in line with conventional wisdom. There is a great deal of concentration in the industry. Out of the 2,694 private fund advisors, the top 10 (0.4%) have 21% of the net asset value. While the top ten’s percentage of net asset value was mostly stable over the two year period, the numbers suggest that in a broader sense, growth is concentrated in existing funds and advisors. Over the two years covered by the report, net asset value increased by 26% ($1.4 trillion), while the number of private funds only increased by 20% (4,152), and the number of advisors by only 11% (261).

There were also a few surprises – at least surprising to me – some mild and some not so mild. It was interesting to see the large amount of leverage and notional exposure in hedge funds and how little there is in private equity funds. I was surprised at the number of outliers across the board, with the averages typically above, often well above, the 75th percentile in the boxplots. The biggest surprise for me, though, was how little high frequency trading is used in hedge funds. Out of 7,228 reporting hedge funds, only 73, roughly 1%, used any amount of high frequency trading at all, and the assets involved were only about 2% of the total. Between the Flash Boys book and the intense debate around the ethics of high frequency trading over the past couple of years, I expected those numbers to be much higher.

Lastly, there was information that will probably be far more interesting in future reports and over time than in this one. The number of funds and advisers and assets went up in 2013 and 2014 when the market as a whole was doing well. What will be the impact of 2015’s less impressive market performance? At the end of 2014, private liquidity funds were a fringe asset class both in the private fund space and compared to ‘40 Act money market funds. As 2015 comes to a close and more asset managers solidify their post-floating NAV money market plans, will that change?

All in all, the report was an interesting read and a good indicator of the potential of the information that will be available in the future, especially once the much larger mutual fund industry starts reporting on similar data through Form N-PORT.