On October 26, 2011, the Securities and Exchange Commission (the “SEC”) voted unanimously to adopt a new rule under the U.S. Investment Advisers Act of 1940 (the “Advisers Act”) that requires SEC-registered investment advisers that advise one or more private funds (i.e., 3(c)(1) or 3(c)(7) funds) to file Form PF with the SEC for the purpose of reporting systemic risk information. The SEC and the CFTC (the “Commissions”) jointly proposed Form PF on January 26, 2011 to implement certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Please see the February 14, 2011 Investment Management Regulatory Update for a discussion of the proposed rules regarding Form PF. The final rule has not yet been released, but the SEC issued a press release and fact sheet describing several important elements of the new rule. The following discussion of the new rule is based on the SEC’s press release and fact sheet.
According to the SEC’s press release, the information reported on Form PF and shared with the Financial Stability Oversight Council will generally remain confidential; however, according to the proposed rule release, the Commissions indicated that they would be allowed to use Form PF information in examinations, investigations and enforcement actions.
$150 Million Reporting Threshold
Advisers with less than $150 million in private fund assets under management are not required to complete and submit Form PF.
Enhanced Reporting Thresholds
The SEC rule provides that the amount of information to be reported on Form PF and the frequency of reporting will depend on whether the adviser is a “large private fund adviser” or a “smaller private fund adviser.”
Under the thresholds adopted by the final rule, which were modified slightly from those in the proposed rule, the following are “large private fund advisers”:
- Advisers with at least $1.5 billion in hedge fund assets under management;
- Advisers with at least $1 billion in combined assets under management attributable to liquidity funds and registered money market funds; and
- Advisers with at least $2 billion in private equity fund assets under management.
Advisers not meeting these thresholds are considered smaller private fund advisers.
Initial Compliance Dates
The SEC rule provides for a two-stage implementation period for Form PF reporting:
- For advisers with at least (i) $5 billion in hedge fund assets under management, (ii) $5 billion in private equity fund assets under management or (iii) $5 billion in combined liquidity fund and registered money market fund assets under management, the compliance date is June 15, 2012, at which time such large private fund advisers will be required to file a report after the next fiscal quarter (or year, as applicable) to end on or after such date (e.g., June 30, 2012 for large hedge fund advisers with a December 31 fiscal year-end).
- For all other advisers, the compliance date for reporting is December 15, 2012, at which time such advisers will be required to file a report after the next fiscal quarter (or year, as applicable) to end on or after each date.
Frequency of Reporting; Information to be Reported
Smaller Private Fund Advisers. Smaller private fund advisers are required to file Form PF annually within 120 days of the end of their fiscal year. These advisers will be required to report only a limited amount of information regarding their private funds, including fund size, use of leverage, concentration of investor base, fund liquidity and certain performance information. Such advisers managing hedge funds must also report information about their funds’ investment strategies, trading and clearing practices and counterparty risk.
Large Private Fund Advisers. Unlike the proposed rules, the frequency of reporting and timing of filing reports will depend on the types of private funds managed by a large private fund adviser. All large private fund advisers are required to report substantially more information about their private funds than smaller private fund advisers.
- Large hedge fund advisers are required to file Form PF on a quarterly basis within 60 days after the end of each fiscal quarter. The reporting will include a wide array of information, reported on an aggregate basis, about the hedge funds they manage. The SEC fact sheet makes clear, however, that the reporting will not include position-level information.
- Large liquidity fund advisers are required to file Form PF on a quarterly basis within 15 days after the end of each fiscal quarter. The reporting will include information about the types of assets held by the liquidity funds, certain risk profile information of the funds and whether the funds have a policy of complying with Rule 2a-7 under the Investment Company Act of 1940.
- Large private equity fund advisers are required to file Form PF on an annual basis within 120 days after the end of their fiscal year. The reporting will require information regarding the private equity funds managed by the adviser, including portfolio company leverage, investments in financial institutions and the use of bridge financing.
The CFTC is separately considering whether to finalize its proposed rule 4.27(d), which would require private fund advisers that are also registered with the CFTC as commodity pool operators (“CPOs”) or commodity trading advisors (“CTAs”) also to file Form PF, in which case the filing would be a filing with both the SEC and CFTC. According to the SEC’s fact sheet, the CFTC is “expected to vote on adopting these reporting requirements within the next week.”
See a copy of the SEC press release and fact sheet.