ALTERNATIVE INVESTMENT FUNDS—SEC issues report on hedge fund, private equity trends - 12 February 2021

The information is drawn from reports on filings of Form PF and aggregated to preserve anonymity and protect proprietary information.

The SEC has released the most recent statistics and private fund trends gathered from filings of Forms PF and Forms ADV. The information, which reflects data from the third calendar quarter of 2018 through the second calendar quarter of 2020, includes aggregated data on from Form PF filers with numbers that are rounded or masked to avoid potential disclosure of proprietary information. Only SEC-registered advisers with at least $150 million in private fund assets under management must file a Form PF with the Commission, although SEC-registered advisers with smaller private fund asset numbers report general information regarding the funds they manage on Form ADV.

Numbers and assets. For the quarter ending in spring 2020, private equity funds topped the list in number of funds reported with 14,482, followed by hedge funds with 9,402. Hedge funds edged out private equity funds in the number of advisers advising each fund type by 1,724 to 1,361.

In terms of aggregate assets by fund type over time, the categories of hedge funds and "qualifying hedge funds" (i.e., a hedge fund advised by a large hedge fund adviser that has a net asset value of at least $500 million) came in first and second in both the aggregate private fund gross asset value (GAV) and aggregate private fund net asset value (NAV). Private equity funds and "Section 4 private equity funds" (i.e., a private equity fund managed by a large private equity fund adviser) took the third and fourth spots on the SEC’s chart.

Fund domiciles. The U.S. led the way as the country with the largest percentage of all private fund domiciles as a percentage of NAV at 51 percent. The Cayman Islands came in second with 34.7 percent, and all other domiciles (including Ireland, Luxembourg, the British Virgin Islands, Bermuda, and the U.K.) falling in the single digits.

When separated by type, the Cayman Islands was the most popular domicile for qualifying hedge funds by NAV percentage at 52.5 percent, and the U.S. behind the Cayman Islands at 35.1 percent. Private equity funds in the U.S. came out over the Cayman Islands by 55.1 percent to 31.3 percent.

The report also relayed information on adviser main offices as a percentage of NAV. The U.S. was the overwhelmingly favored location for adviser main offices at 90.4 percent for all private funds. While qualifying hedge funds dipped slightly lower for U.S. adviser main offices at 89.8 percent, it remained the favorite for adviser main office locations of private equity funds at 93.8 percent.

Beneficial ownership. In terms of beneficial ownership for all private funds, other private funds topped the chart at 17 percent of aggregate NAV. The catch-all "other" category came in second at 15.3 percent, followed by state and municipal government pension plans, other pension plans, non-profits, and U.S. individuals.

When broken down by types of funds, private funds were still the top beneficial owners in qualifying hedge funds, followed by non-profits, and the "other" category. State and municipal government pension plans chalked up a beneficial ownership amount of 21.1 percent in Section 4 private equity funds, followed by private funds, sovereign wealth funds, and other pension plans. According to the report, the weighted-average beneficial ownership of top five owners were "other" private funds, real estate funds, hedge funds, venture capital funds, qualifying hedge funds, and private equity funds—all of which came in at 50 to 60 percent.

Other hedge fund industry information. The report also presented tables about other hedge fund information gathered from Form PF. Regarding the number of hedge funds using high frequency trading strategy, over 8,000 reported zero percent of NAV was used for HFT, while 51 reported less than 100 percent and 8 reported 100 percent of NAV or more.

North America dominated large hedge fund adviser exposure by region, followed by the European EEA and Asia. However, when broken down by country, the U.S. remained dominant, with China (including Hong Kong) coming in second, followed by Japan, Brazil, and India.

The report listed the aggregate qualifying hedge fund gross notional exposure by asset type: (1) interest rate derivatives; (2) foreign exchange derivatives; (3) non-financial listed equities; (4) repurchase agreements; and (5) U.S. Treasury securities.