Proposed Form PF Released

For your review, we have published the proposed Form PF which can be found here: Form PF.

According to an SEC proposal announcement last week, SEC registered managers will be required to file proposed Form PF with the SEC on either a quarterly or annual basis in the future.  Form PF is a multi-purpose form to be used by all types of SEC registered investment advisers – hedge fund managers, private equity fund managers, and liquidty fund managers. While the level of specificity changes with AUM (high AUM managers must disclose more information), Form PF requests much more information from fund managers than have previously been required to be provided to regulators.

This post will provide an overview of the major aspects of the Form PF as it is currently proposed.

[Please note that the form is highly dependant on precise definitions. The discussion below is general and I have not discussed some of the nuances. For example, when I discuss AUM, the discussion is necessarily general.]

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Who is required to file Form PF?

Mangers must file Form PF if they meet the following two tests:

1. Registered or required to be registered with the SEC and
2. Provide advice to a private fund (generally a 3(c)(1) or 3(c)(7) fund) *

* the term private fund is defined in Form PF.

When do managers need to file Form PF?

Managers will need to file Form PF either (i) on an annual basis if they have less than $1 billion of AUMor (ii) on a quarterly basis if they have more than $1 billion of AUM.

If the manager files on an annual basis, the filing will need to be completed within 90 days of the end of the manager’s fiscal year.

If the manager files on a quarterly basis, the filing will need to be completed within 15 days of the end of the calendar quarter.

What are the sections of Form PF?

Form PF has 5 major sections. For managers filing on an annual basis, generally only Section 1 will need to be completed. For managers filing on a quarterly basis, Sections 2, 3 or 4 will need to be completed depending on the types of investment vehicles for which the manager provides investment advice.  The sections are:

• Section 1 – All Filers
• Section 2 – Hedge Fund Managers with at least $1B AUM
• Section 3 – Liquidity Fund Managers with at least $1 B AUM
• Section 4 – Private Equity Fund Managers with at least $1 B AUM
• Section 5 – Managers Applying for Hardship Exemption

More Detail on Section 1 and Section 2

Section 1

Section 1 applies to all managers who are registered with the SEC.

Section 1a

Contains more general information on the manager and its business.

Section 1b

Managers must provide the following information on the “private funds” which they manage:

• gross and net asset value
• borrowing/creditor information
• derivative positions
• investor concentration
• detailed performance information, including performance after performance fees

Section 1c

Managers must provide the following information on the “hedge funds” which they manage:

• strategy
• % of assets traded using algorithm
• counterparties/exposure
• % of equity, debt, ABS traded on and off exchange
• % of equity, debt, ABS cleared by a central clearing counterparty (CCP) and not cleared by a CCP
• % of derivatives traded on and off exchange
• % of derivatives cleared by a CCP and not cleared by a CCP
• % of repos and clearing information

Section 2

Section 2 of Form PF requires managers to provide the SEC with a surprising amount of detail with respect to the fund, the fund’s investment strategy, counterparties and investors. Below we have provided an overview of some of the different requirements.

Section 2a

Generally the following information for the manager as a whole:

• drill down of positions – equity, corporate bonds, convertible bonds, sovereign and muni bonds, loans, repos, ABS/structured products, credit derivatvies, commodities, cash
• turnover rate
• geographic breakdown of instruments

Section 2b

For each fund, the following information for such fund:

• drill down of investments
• liquidity
• positions representing 5% or more of fund’s NAV
• counterparty information
• CCP information
• reporting VaR
• how market factors effect fund’s portfolio
• secured/unsecured borrowing
• investor information – side pockets, whether manager has right to suspend withdrawals, whether there are gates, whether there is currently a suspension of withdrawals, whether the gate provision is currently enacted

Section 3 and Section 4

These sections include questions which are applicable to liqidty funds and private equity funds. They are structured similar to section 2 (a & b), but overall there is less information requested.

Other

legal steroids

Items to Note

Form PF instructions are very specific with respect to the information that should be completed in the certain sections. In addition, there are unique items that may not apply to all firms which need to be considered. Some of these items to note with respect to the form:

• there will be issues with respect to related persons
• there will be sub-adviser issues
• managers must understand the difference between reporting for individual funds v. reporting for fund structures (i.e. master-feeder, mini-master, parallel)
• there are many new definitions (135 defined terms in the glossary – 11 pages worth!)
• special rules for managers making transitions (quarterly to annually) and final filings
• private fund identification numbers are required and can only be obtained by filing Form ADV (original or amended filing)
• filing Form PF is done electronically, signed by a managing member of the firm
• there are likely to be confusions with definitions (likely to be worked out during and after the comment period)

Initial Thoughts

I am still fully developing my thoughts on the form and should have more detailed thoughts in later posts – in the meantime, my bullet point thoughts are as follows:

• The form seems to be thoughtfully laid out.
• The amount and detail of the questions is surprising.
• Managers with many funds are going to face a large reporting burden.

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Bart Mallon provides investment adviser registration services through Cole-Frieman & Mallon LLP, a law firm focused on the investment management industry.  He can be reached directly at 415-868-5345.