By now, most investment advisers registered with the Securities and Exchange Commission (SEC) have either (a) filed a Form PF, (b) are preparing to file a Form PF, (c) have determined that, since they do not advise “private funds” or at least “private funds”1 at or above Form PF thresholds, they will not have to file a Form PF in 2013, or (d) have at least heard of Form PF (one can hope).2
Pepper Point: Some key Form PF deadlines include a quarterly filing deadline of March 1, 2013 for advisers with $1.5 billion to $5.0 billion in hedge fund “private fund regulatory assets under management” (P-RAUM). Advisers with $150 million but less than $1.5 billion in hedge fund P-RAUM as of the last day of the adviser’s most recently completed fiscal year ending on or after December 15, 2012 are only required to make an annual filing within 120 days of their fiscal year end (for advisers operating on a calendar-year basis, the first filing would need to be made by April 30, 2013). In addition to these deadlines, there are others spread throughout 2013, depending on the size of the funds managed and the nature of the P-RAUM of the adviser.
Background – on October 26, 2011, the SEC unanimously adopted new Rule 204(b)-1 under the Investment Advisers Act of 1940 (the “Advisers Act”), which requires all SEC-registered investment advisers with at least $150 million in private fund regulatory assets under management (as calculated in accordance with the standards of Form ADV) to report certain systemic risk related information to the SEC on new Form PF.
An investment adviser must file Form PF if it: (1) is registered or required to register with the SEC; (2) advises one or more private funds; and (3) had at least $150 million in regulatory assets under management attributable to private funds3 (P-RAUM) as of the end of its most recently completed fiscal year.4 State-registered advisers and so-called “Exempt Reporting Advisers” are off the hook and do not have to file a Form PF with the SEC because they are considered to pose minimal systemic risk. Advisers solely to venture capital funds or advisers solely to private funds that in the aggregate have less than $150 million in regulatory assets under management (i.e., including leverage) in the United States that rely on the exemption from registration under, respectively, Section 203(l) or 203(m) of the Advisers Act (the Exempt Reporting Adviser class of advisers) also are not required to file a Form PF.
Pepper Point: Form PF compliance thresholds are set at various “regulatory assets under management” dollar amounts. That means regulatory assets under management, calculated in accordance with Part 1A, Instruction 5.b of Form ADV. Keep in mind, that to calculate P-RAUM, the adviser must use gross assets under management without reductions for borrowings, short sales or other forms of leverage. In the case of an advised private fund, the use of the term “regulatory assets under management” also means determining the current market value (or fair value) of the advised private fund assets and the contractual amount of any uncalled capital commitments pursuant to which a person is obligated to acquire an interest in, or make a capital contribution to, the applicable private fund(s). Further, in determining whether a private fund adviser meets Form PF thresholds, an adviser must aggregate assets of parallel managed accounts,5 private funds that are part of the same master-feeder structure, private funds that are part of the same parallel fund structure and private funds advised by any of the adviser’s “related persons”6 other than related persons that are “separately operated.” The separately operated exception is a very high standard to meet and should not be considered to be a realistic option for most investment advisers dealing with traditional affiliate relationships – see footnote 9.
Pepper Point: Under Form PF Instructions #7 and #8, an adviser may have the ability to disregard any advised private fund’s equity investments in other non-advised private funds (i.e., certain funds-of-funds structures).
Pepper Point: To prevent duplicative reporting, only one adviser should report information on Form PF with respect to sub-advised funds. However, if the adviser that completes information on Schedule D to Form ADV with respect to the private fund is not required to file Form PF (such as in the case of an Exempt Reporting Adviser), then another adviser must report on that fund on its Form PF. If none of the advisers to a fund is required to file Form PF because they are all exempt reporting advisers or do not exceed the minimum reporting threshold, Form PF does not require any adviser to file a Form PF with regard to the fund in question, presumably because the funds are too small to pose a systemic risk.
Pepper Point: If an adviser’s principal office and place of business is outside the United States, the adviser also may exclude any private 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.
For SEC-registered investment advisers who advise private fund money above applicable thresholds, Form PF will disclose to the SEC an unprecedented amount of information about their advised funds. If a P-RAUM holdings test is satisfied, Form PF must be filed by an SEC-registered investment adviser irrespective of whether the adviser manages one fund or multiple funds. The amount of information the adviser is required to include on Form PF is, in large measure, based on the total amount of private fund money advised. Further, an adviser may, but is not required to, file one consolidated Form PF for itself and its related persons.
Form PF is filed electronically on the Investment Adviser Registration Depository (IARD) system, the same way Form ADV is filed, though a paper form that can serve as a worksheet is available from the SEC at http://www.sec.gov/about/forms/formpf.pdf. As with Form ADV annual updates, there is a filing fee. Fees charged for filing Form PF Annual Reports (and Quarterly Reports, for firms required to file on a quarterly basis) are $150 for each Annual Report and each Quarterly Report. Fees must be credited to the firm’s IARD Daily Account before the filing can be submitted. No fee is charged for filing an electronic amendment to Form PF, a final Form PF filing, or a transition to annual reporting filing.
While responses on Form PF will be treated as confidential, the form will be supplied to the Financial Stability Oversight Council (FSOC)7 and will be made available to the CFTC. Pursuant to the Dodd-Frank Act, Form PF data may also be shared with Congress as well as federal departments or agencies or with self-regulatory organizations (in addition to the CFTC and FSOC), for purposes within the scope of their jurisdiction.8
Some Key Form PF Terms
-A hedge fund is any private fund (other than a securitized asset fund):
(a) with respect to which one or more investment advisers (or related persons of investment advisers) may be paid a performance fee or allocation calculated by taking into account unrealized gains (other than a fee or allocation the calculation of which may take into account unrealized gains solely for the purpose of reducing such fee or allocation to reflect net unrealized losses)
(b) that may borrow an amount in excess of one-half of its net asset value (including any committed capital) or may have gross notional exposure in excess of twice its net asset value (including any committed capital), or
(c) that may sell securities or other assets short or enter into similar transactions (other than for the purpose of hedging currency exposure or managing duration).
Solely for purposes of Form PF, any commodity pool about which an adviser is reporting or required to report on Form PF is categorized as a hedge fund. Also, for purposes of the Form PF hedge fund definition (such as to calculate borrowing percentages), an adviser may not net long and short positions. An adviser must further include any borrowings or notional exposure of another person that are guaranteed by the applicable private fund(s) or that the private fund(s) may otherwise be obligated to satisfy.
-A private equity fund is any private fund that is not a hedge fund, liquidity fund, real estate fund, securitized asset fund or venture capital fund and does not provide investors with redemption rights in the ordinary course.
Pepper Point: For investment advisers with more than $150 million in regulatory assets under management attributable to private funds as of the end of their most recently completed fiscal year, but who don’t qualify as “large” advisers under Form PF definitions, the whole process may not be all that taxing, at least if the adviser’s internal arrangements are not unusually complicated. The “large filer” thresholds of $1.5 billion in hedge fund, $2.0 billion in private equity, and $1.0 billion in liquidity fund assets are all separate. An adviser with $1.4 billion in hedge fund and $1.9 billion in private equity assets is treated similarly to an adviser with just $151 million in P-RAUM.
Form PF filers can stop with just Section #1 (pages 1-11 of the form or just pages 1-7 if the adviser does not advise hedge funds), if each of (A), (B) and (C) below is true for the adviser and its related persons (but excluding the regulatory assets under management of any related person that is “separately operated” – i.e., parties the adviser was not required to report on Section 7.A. of Schedule D to the adviser’s Form ADV Part 1).9
(A) The adviser and its related persons, collectively, had less than $1.5 billion in hedge fund regulatory assets under management as of the last day of any month in the fiscal quarter immediately preceding its most recently completed fiscal quarter.
(B) The adviser and its related persons, collectively, had less than $2.0 billion in private equity fund regulatory assets under management as of the last day of its most recently completed fiscal year.
(C) The adviser and its related persons, collectively, had less than $1 billion in combined money market and liquidity fund (meaning private funds that seeks to generate income by investing in a portfolio of short-term obligations in order to maintain a stable net asset value per unit or minimize principal volatility for investors) regulatory assets under management as of the last day of any month in the fiscal quarter immediately preceding the adviser’s most recently completed fiscal quarter.
Pepper Point: A “private equity” style fund that, nevertheless, “provide[s] investors with redemption rights in the ordinary course” is not a “private equity fund” for purposes of Form PF. So, if an adviser has several billion dollars in “private equity style” assets under management in a fund structure that does provide regular liquidity as noted above, that fund would not be classified as a “private equity fund” for Form PF purposes. If such “private equity style” fund also does not have any of the characteristics above that would cause the fund to be defined as a hedge fund or liquidity fund, the adviser to that fund may not be required to count the assets of the “private equity style” fund toward the determination of whether the adviser is a “large private equity fund adviser,” “large hedge fund adviser,” or “large liquidity fund adviser.” Avoiding such “large” adviser thresholds can result in reduced disclosure requirements and make completing Form PF far less time consuming.10
First Filing Deadlines
A large hedge fund adviser (or large liquidity fund adviser) that also manages other types of funds must file quarterly updates with respect to its hedge funds (or liquidity funds, as applicable) but only needs to update information regarding its other funds when it files its fourth-quarter update. Such an adviser may comply with its filing obligations by initially filing a fourth-quarter update that includes only information about its hedge funds (or liquidity funds, as applicable) within 60 days (or 15 days, as applicable) and then amending its filing within 120 days after the end of the quarter to include information about its other funds.
A newly registered adviser is not required to file Form PF with respect to any period that ended prior to the effective date of its registration. For example, a “large hedge fund adviser” that registers during the first quarter of 2013 would need to file its initial report within 60 days of the end of that quarter, but would not need to file for the preceding fiscal quarter. If an adviser transitions from filing quarterly to filing annual reports or is no longer required to file Form PF, it must file a Form PF to report this change no later than the last day on which its next Form PF update would be timely filed.
Pepper Point: We know Form PF can be complex, in particular for firms that are newly registered or have otherwise never filed a Form PF before. Firms seeking help may do well to turn to their legal advisers for questions or general assistance.
1 A Form PF “private fund” is any issuer (i.e., a fund) that would be an investment company as defined in Section 3 of the Investment Company Act of 1940 (the 1940 Act) but for Section 3(c)(1) or 3(c)(7) of the 1940 Act. If any private fund has issued two or more series (or classes) of equity interests whose values are determined with respect to separate portfolios of securities and other assets, then each such series (or class) are regarded as a separate private fund for Form PF purposes. This only applies with respect to series (or classes) that are managed as if they were separate funds and not a fund’s side pockets or similar arrangements.
2 Most SEC-registered investment advisers will have already received one (or more) articles or alerts on the subject, such as the Pepper Hamilton LLP alert of November 2011 on the passage and various specifics of the Form PF requirements, which is available at http://www.pepperlaw.com/publications_update.aspx?ArticleKey=2238.
3 However, as noted below, if the adviser advises one or more private funds, for purposes of determining whether an adviser meets the $150 million minimum reporting threshold or is a “large” hedge fund, private equity fund or liquidity fund adviser, the adviser must (in general) aggregate together money managed in parallel managed accounts and assets of private funds advised by any of the adviser’s “related persons” other than related persons that are separately operated. These aggregation requirements were designed to prevent an adviser from avoiding Form PF reporting requirements by re-structuring how it provides advice. Please note: the SEC does allow advisers to exclude parallel managed accounts for Form PF threshold calculations if the value of those accounts is greater than the value of the private funds with which they are managed, with the caveat that an adviser must still include the value of parallel managed accounts in determining whether it meets a reporting threshold if the value of those accounts is less than the value of the private funds managed using substantially the same strategy.
4 Advisers with (a) hedge fund P-RAUM of $1.5 billion or greater, or (b) liquidity fund P-RAUM that, when combined with money market fund AUM is in excess of $1 billion have fiscal quarter filing triggers.
5 “Parallel managed accounts” are accounts advised by the adviser that pursue substantially the same investment objective and strategy and that invest in substantially the same positions as private funds advised by the adviser.
6 “Related persons” for purposes of Form PF are defined to include all the adviser’s officers, partners or directors (or persons performing similar functions); all persons controlling, controlled by or under common control with the adviser; and all of the adviser’s employees (other than those performing administrative or clerical functions).
7 The voting members of FSOC are the Secretary of the Treasury, the Chairman of the Federal Reserve Board, the Comptroller of the Currency, the Director of the Bureau of Consumer Financial Protection, the Chairman of the SEC, the Chairperson of the Federal Deposit Insurance Corporation, the Chairperson of the CFTC, the Director of the Federal Housing Finance Agency, the Chairman of the National Credit Union Administration Board and an independent member appointed by the President having insurance expertise. The FSOC is also required to have five nonvoting members, which are the Director of the Office of Financial Research, the Director of the Federal Insurance Office, a state insurance commissioner, a state banking supervisor and a state securities commissioner.
8 In each case, any such department, agency or self-regulatory organization would be exempt from being compelled under the Freedom of Information Act to disclose to the public any information collected through Form PF and must maintain the confidentiality of that information consistent with the level of confidentiality established for the SEC in Section 204(b) of the Advisers Act.
9 An adviser need not complete Form ADV Part 1, Section 7.A. of Schedule D for any related person if: (1) it has no business dealings with the related person in connection with advisory services the adviser provides to its clients; (2) the adviser does not conduct shared operations with the related person; (3) the adviser does not refer clients or business to the related person, and the related person does not refer prospective clients or business to the adviser; (4) the adviser does not share supervised persons or premises with the related person; and (5) the adviser has no reason to believe that its relationship with the related person otherwise creates a conflict of interest with their clients. In any case, an adviser must complete Section 7.A. of Schedule D for each related person acting as qualified custodian in connection with advisory services the adviser provides to its clients (other than any mutual fund transfer agent pursuant to Rule 206(4)-2(b)(1)), regardless of whether the adviser has determined the related person to be operationally independent under Rule 206(4)-2 of the Advisers Act.
10 An adviser should check that the classification of the types of funds disclosed on its filed Form PF is consistent with its filed Form ADV.
11 For instance, an adviser with $5 billion in hedge fund assets under management as of March 31, 2012, was required to file its first Form PF within 60 days following June 30, 2012. An adviser having a June 30 fiscal year end and $5 billion in private equity fund assets under management as of June 30, 2012, was required to file its first Form PF within 120 days following June 30, 2012.
Gregory J. Nowak and Matthew R. Silver
More Resources on the Dodd-Frank Act
For additional information, please visit Pepper's Financial Services Reform Resource Center.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.