SEC and CFTC Adopt Final Rule Requiring Private Fund Reporting
November 2, 2011
This note summarizes new rules adopted by the SEC and CFTC requiring periodic reporting by private fund advisers on Form PF.
On October 26, 2011, the Securities and Exchange Commission (the “SEC”) voted unanimously to adopt rule 204(b)-1 under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) and require registered investment advisers with at least $150 million in private fund assets under management (“AUM”) to file periodic reports with the SEC on Form PF. In response to comments on the proposed rule, the SEC made substantial changes to Form PF, many of which will reduce advisers’ compliance burdens. On October 31, 2011, the CFTC adopted rule 4.27, requiring such advisers, if they are dually registered with the CFTC, to satisfy certain CFTC filing requirements by periodically reporting to the SEC on Form PF. Therefore, such advisers will not be subject to reporting requirements with both agencies. Information collected on Form PF will be kept confidential by the agencies and used primarily by the Financial Stability Oversight Council to assess systemic risk. Advisers not required to register with the SEC (e.g., advisers exempt under the new private fund adviser exemption) are not required to file Form PF. The rules implement sections 404 and 406 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Form PF creates a tiered reporting system based on size of the adviser and the types of funds managed. Private funds will generally be classified as hedge funds, liquidity funds, private equity funds, real estate funds, securitized asset funds, or venture capital funds (in each case, as defined in the glossary to Form PF). Most advisers will be required to complete only section 1 of Form PF, which contains basic information, including the amount of private fund AUM, fund performance, the percentage owned by the five largest equity holders, and information on the adviser’s use of leverage. However, large hedge fund advisers (at least $1.5 billion in hedge fund AUM), large liquidity fund advisers (at least $1 billion in combined liquidity fund and registered money market fund AUM), and large private equity fund advisers (at least $2 billion in private equity fund AUM) (collectively, “Large Private Fund Advisers”) must provide more detailed information by completing an additional section of Form PF.
Large hedge fund advisers must complete section 2, which requires aggregated information about all hedge funds advised by large hedge fund advisers and requires detailed, fund-by-fund information about each hedge fund with a net asset value of at least $500 million (qualifying hedge funds). Information required for each fund relates to asset type, counterparty exposure, risk metrics, financing, and investor redemptions and withdrawals. Section 3 must be completed by large liquidity fund advisers and requires information about liquidity fund asset type, asset maturity, financing, and investors. Section 4 must be completed by large private equity fund advisers and requires information about private equity fund financing and investments. In a change advocated by industry commenters, position-level reporting will not be required for any fund.
Matching the requirements for non-U.S. “Exempt Reporting Advisers,” non-U.S. advisers required to report on Form PF may exclude from their reporting any fund that during the adviser’s last fiscal year was not a United States person, was not offered in the United States, and was not beneficially owned by any United States person.
The final Form PF reporting requirements differ from the proposal in the following significant ways:
Timing of filings
- New threshold for filing: Registered advisers with less than $150 million in private fund AUM are not required to file Form PF.
- Higher thresholds to be a “Large Private Fund Adviser,” as noted above. In addition, while hedge funds and liquidity funds must calculate their AUM monthly, private equity funds need only perform this calculation annually.
- For purposes of the Large Private Fund Adviser thresholds and the $150 million minimum reporting threshold, advisers must aggregate (i) any assets of accounts managed in parallel (substantially the same investment objective and strategy) with the adviser's private funds (“parallel managed accounts”) unless the value of such accounts exceeds the value of the private funds, and (ii) assets of private funds advised by any of the adviser’s “related persons” (unless separately operated). The proposal did not contain carve-outs for parallel managed accounts that exceed related private fund AUM or private funds advised by related persons that are separately operated.
- The certification “under penalty of perjury” that the information on Form PF is “true and correct” has been removed. Although Form ADV requires this certification, the agencies agreed with commenters that Form PF requires advisers to provide estimates and exercise significant judgment in preparing responses, and therefore the certification is not appropriate for Form PF. To that end, a newly-added instruction clarifies that “You may respond to this Form using your own internal methodologies and the conventions of your service providers, provided the information is consistent with information that you report internally and to current and prospective investors.”
- Under the final rule, advisers are required to report monthly and quarterly performance results only if such results are already calculated with that frequency for the reporting fund. The proposal required monthly and quarterly performance data for all reporting funds. Moreover, the requirement to report change in net asset value has been removed, and the net performance figure was modified to allow deduction of management fees and incentive fees and allocation.
- Smaller private fund advisers and large private equity fund advisers must file Form PF annually within 120 days after the end of each fiscal year, as compared to the original proposal of 90 days after each year for smaller private fund advisers and 15 days after each quarter for large private equity fund advisers.
- Large hedge fund advisers must file Form PF quarterly within 60 days (rather than 15 days) after the end of each fiscal quarter. Large liquidity fund advisers must still file within 15 days after the end of each fiscal quarter.
- Large Private Fund Advisers filing quarterly need only file quarterly with respect to the type of fund that exceeds the Large Private Fund Adviser reporting threshold. The proposal required quarterly reporting for all private funds managed by Large Private Fund Advisers.
- There will be a two-stage phase-in period for compliance with the rule: Most private fund advisers must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, ending on or after December 15, 2012. However, advisers with at least $5 billion in AUM attributable to hedge funds, combined liquidity and money market funds, or private equity funds must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, ending on or after June 15, 2012. The compliance date under the original proposal was December 15, 2011.