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Client Alert

SEC Adopts the Dreaded Form PF – But with a Few Twists

Wednesday, November 16, 2011

“The data collection we propose will play an important role in supporting the framework created by the Dodd-Frank Act and is designed to ensure that regulators have a view into any financial market activity of potential systemic importance…”

So said U.S. Securities and Exchange Commission (SEC) Chairman Mary L. Schapiro, in a press release issued after the adoption of Form PF on October 26, 2011.

For SEC-registered investment advisers who advise private funds (SEC RIAs), Form PF1 means sharing with the SEC an unprecedented amount of information about the funds they advise. Whether an SEC RIA is required to file Form PF in the first place, and then the amount of information such SEC RIA is required to include on Form PF is based on the adviser’s holdings and not on the number of transactions it authorizes. If the holdings test is satisfied, Form PF must be filed by an SEC RIA irrespective of whether the SEC RIA manages one fund or twenty funds.

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;2 and (3) had at least $150 million in regulatory assets under management (AUM) attributable to private funds as of the end of its most recently completed fiscal year. State-registered advisers and so-called “Exempt Reporting Advisers” are off the hook and do not have to file 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 assets under management 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 Advisers) are not required to file Form PF.

Pepper Point: Regulatory assets under management that trigger reporting are calculated in accordance with Part 1A, Instruction 5.b of Form ADV. Please note – AUM for Form PF most certainly does not mean “net assets.” Rather, gross assets are counted.

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 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 the Form with respect to that fund.

SEC RIAs who are required to file Form PF are divided into two broad categories: one, large SEC RIAs, i.e., those who (i) advise hedge funds3 and have AUM of $1.5 billion attributable to hedge funds as of the end of any month in the prior fiscal quarter (Large Hedge Fund Advisers); (ii) advise U.S.-based private equity funds4 and have AUM of $2 billion attributable to private equity funds as of the last day of the adviser’s most recently completed fiscal year (Large PE Fund Advisers); or (iii) advise at least one liquidity fund5 and have combined liquidity fund registered money market fund AUM of $1 billion as of the end of any month in the prior fiscal quarter (“Large Liquidity Fund Advisers” and collectively with Large Hedge Fund Advisers and Large PE Fund Advisers, Large Advisers); and two, small SEC RIAs (Small Advisers), i.e., SEC RIAs who are not Exempt Reporting Advisers or Large Advisers. The amount of information reported and the frequency of reporting is substantially different for Large Advisers and Small Advisers.

Pepper Point: An SEC RIA with $1.49 billion AUM of hedge fund assets and $1.49 billion in private equity fund assets would only be required to complete limited portions of Form PF, particularly if each advised hedge fund had less than $500 million in net asset value.

Large Advisers

The focus and frequency of the reporting depends on the type of private fund the Large Advisers advise.

Large Hedge Fund Advisers must:

  • file Form PF to update information regarding the hedge funds they manage within 60 days of the end of each fiscal quarter
  • report on an aggregated basis information regarding exposures by asset class, geographical concentration, and turnover by asset class, and
  • if any hedge fund advised by the Large Hedge Fund Adviser has a net asset value of at least $500 million, with respect to such hedge fund, report certain information relating to that fund’s exposures, leverage, risk profile, and liquidity. Large Hedge Fund Advisers are not required to report position-level information.

Pepper Point: Commodity pools are treated as hedge funds for purposes of Form PF. An adviser reporting on Form PF regarding a commodity pool that is not a private fund, should treat it as a private fund for purposes of Form PF. However, such a commodity pool is not required to be included when determining whether an adviser exceeds one or more reporting thresholds. If such a commodity pool is a qualifying hedge fund (i.e., with a net asset value of at least $500 million) and the adviser is otherwise required to report information in section 2a of Form PF, then they must report regarding the commodity pool in section 2b of Form PF (i.e., supply expanded information concerning the fund).

Large PE Fund Advisers must:

  • file Form PF annually within 120 days of the end of the fiscal year
  • respond to questions focusing primarily on the extent of leverage incurred by their funds’ portfolio companies, the use of bridge financing, and their funds’ investments in financial institutions.

Large Liquidity Fund Advisers must:

  • file Form PF to update information regarding the Liquidity Funds they manage within 15 days of the end of each fiscal quarter
  • provide information on the types of assets in each of their Liquidity Fund’s portfolios, certain information relevant to the risk profile of the Liquidity Fund, and the extent to which the Liquidity Fund has a policy of complying with all or aspects of Rule 2a-7 promulgated under the Investment Company Act, which relates to registered money market funds.

Small Advisers

Small Advisers must:

  • file Form PF only once a year within 120 days of the end of the fiscal year
  • report only basic information regarding the private funds they advise, including limited information regarding size, leverage, investor types and concentration, liquidity, and fund performance, and
  • if they advise hedge funds, also report information about fund strategy, counterparty credit risk, and use of trading and clearing mechanisms.

This section of the Form, which is filled out by advisers completing Form PF, is divided into three parts:

Section 1a requires information regarding the adviser’s identity and assets under management. Information requested includes:

Provide the following information for each of the related persons, if any, with respect to which you are reporting information on this Form PF:

Legal name

SEC 801-Number

NFA ID Number, if any

Large trader ID, if any

Large trader ID suffix, if any

Section 1b requires limited information regarding the size, leverage and performance of all private funds subject to the reporting requirements. Information requested includes:

12. Provide the following information regarding the value of the reporting fund’s borrowings and the types of creditors.

(You are not required to respond to this question for any reporting fund with respect to which you are answering Question 43 in Section 2b. Do not net out amounts that the reporting fund loans to creditors or the value of collateral pledged to creditors.)

(The percentages borrowed from the specified types of creditors should add up to approximately 100%.)

(a) Dollar amount of total borrowings..................................................................  
(b) Percentage borrowed from U.S. financial institutions...................................  
(c) Percentage borrowed from non-U.S. financial institutions............................  
(d) Percentage borrowed from U.S. creditors that are not financial institutions.......  
(e) Percentage borrowed from non-U.S. creditors that are not financial institutions.  

13.    (a) Does the reporting fund have any outstanding derivatives positions?

Yes           No

(b) If you responded “yes” to Question 13(a), provide the aggregate value of all derivatives positions of the reporting fund..................................................................................................

(You are not required to respond to Question 13 for any reporting fund with respect to which you are answering Question 44 in Section 2b.)

14. Provide a summary of the reporting fund’s assets and liabilities categorized using the hierarchy below. For assets and liabilities that you report internally and to current and prospective investors as representing fair value, or for which you are required to determine fair value in order to report the reporting fund’s regulatory assets under management on Form ADV, categorize them into the following categories based on the valuation assumptions utilized:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – Other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 – Unobservable inputs, such as your assumptions or the fund’s assumptions used to determine the fair value of the asset or liability.

For any assets and liabilities that you report internally and to current and prospective investors as representing a measurement attribute other than fair value, and for which you are not required to determine fair value in order to report the reporting fund’s regulatory assets under management on Form ADV, separately report these assets and liabilities in the “cost-based” measurement column. [….]

Section 1c requires additional “basic” information regarding hedge funds, such as Question 22 that includes a drop-down menu:

22. Identify the five counterparties to which the reporting fund has the greatest mark-to-market net counterparty credit exposure, measured as a percentage of the reporting fund’s net asset value.

(For purposes of this question, you should treat affiliated entities as a single group to the extent exposures may be contractually or legally set-off or netted across those entities and/or one affiliate guarantees or may otherwise be obligated to satisfy the obligations of another. CCPs should not be regarded as counterparties for purposes of this question.)

(In your response, you should take into account: (i) mark-to-market gains and losses on derivatives; and (ii) any loans or loan commitments.)

(However, you should not take into account: (i) margin posted by the counterparty; or (ii) holdings of debt or equity securities issued by the counterparty.)

Form PF
Section 1c

Information about the hedge funds you advise
(to be completed by all Form PF filers that advise hedge funds)

Page 10 of 42


Legal name of the counterparty
(or, if multiple affiliated entities, counterparties)

Indicate below if the counterparty is affiliated with a major financial institution

Exposure (% of reporting fund’s net asset value)

 (a)   [drop-down list of counterparty names] Other: [Not applicable]


(b)    [drop-down list of counterparty names] Other: [Not applicable]


 (c)   [drop-down list of counterparty names] Other: [Not applicable]


(d)   [drop-down list of counterparty names] Other: [Not applicable]


(e)    [drop-down list of counterparty names] Other: [Not applicable]



Section 2 (for Large Hedge Fund Advisers), is significantly more comprehensive. Section 3 (for Large Liquidity Fund Advisers) and Section 4 (for Large Private Equity Fund Advisers) are also more time-consuming to complete than Section 1. Section 1 contains 25 questions, Section 2 contains three questions applicable to Large Hedge Fund Advisers and another 22 (many multi-part) questions concerning funds that have $500 million or more in NAV.6 Section 3 contains 14 questions and Section 4 also contains 14 questions.

For purposes of initial filing deadlines only, any adviser having at least $5 billion in any of hedge funds, $5 billion in private equity funds, or $5 billion in liquidity funds (including money-market funds) AUM as of the last day of the fiscal quarter most recently completed prior to June 15, 2012 must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after June 15, 2012. All Small Advisers, and all Large Advisers with AUM of less than $5 billion, will be required to begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after December 15, 2012.

Pepper Point: An adviser with $4.9 billion of hedge fund AUM and $4.9 billion in private equity fund AUM gets a later start date than an adviser with, say, $5 billion of hedge fund AUM. A Small Adviser with a June 30 fiscal year would not be required to file Form PF until the end of September 2013.

Related persons7 may (but are not required to) report on a single Form PF with respect to all such related persons and the private funds they advise. A filer must identify in its response the related persons as to which it is reporting and, where information is requested about the firm or the private funds advised, responding as though the adviser and such related persons were one firm. Only one private fund adviser should complete and file Form PF for each private fund. If the adviser that filed Form ADV Section 7.B.1 with respect to any private fund is required to file Form PF, the same adviser must also complete and file Form PF for that private fund.

For purposes of determining whether an adviser meets a particular reporting threshold, an adviser must aggregate parallel funds, dependent parallel managed accounts and master-feeder funds. In addition, advisers must treat any private fund or parallel managed account advised by any of their related persons as though it were advised by the adviser completing the form. An adviser is not required, however, to aggregate private funds or parallel managed accounts of any related person that is separately operated.8

One significant change in Form PF as adopted, compared to the original proposal, is that advisers may respond on the form using their own internal methodologies and the conventions of their service providers, provided the information is consistent with information that the adviser reports internally and to current and prospective investors. An adviser may explain any of its methodologies, including related assumptions, on the form. However, an adviser’s methodologies must be consistently applied and responses must be consistent with any instructions or other guidance relating to Form PF.

Pepper Point: Because the SEC is allowing advisers to use their own internal methodologies when completing Form PF, that should make completing the form slightly more manageable.

The SEC has chosen FINRA to accept Form PF filings on its behalf. Advisers must file Form PF through the Form PF filing system on the IARD system under a process substantially similar to the current process of filing Form ADV. While responses on Form PF will be treated as confidential, the form will be supplied to the Financial Stability Oversight Council (FSOC)9 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.10

Pepper Point: We anticipate that savvy fund investors who know that an adviser has made a Form PF filing may also request a copy. Fund advisers will have to consider carefully how to respond to such requests, including whether or not to supply information after it has become somewhat “stale.”

As noted in our Client Alert of April 2011,11 the completion of Form PF will require an astonishing amount of work. In April 2011, SEC estimated that each Small Adviser would take 10 hours of work the first year and 3 hours each subsequent year to prepare and update the filings and that Large Advisers would take 75 hours for an initial filing and 35 hours each quarter after that. In part due to the fact that many commenters suggested to the SEC that compliance estimates were very much on the low side, and despite changes to the adopted Form PF that make it somewhat easier to complete, the current estimates are significantly higher.

Pepper Point: The current estimate for Small Advisers is an average of approximately 40 burden hours to compile, review and electronically file the required information in Section 1 of Form PF for the initial filing and an average of approximately 15 burden hours for subsequent filings. The SEC estimates that Large Advisers will require an average of approximately 300 burden hours for an initial filing and 140 burden hours for each subsequent filing. However, this assumes that some Large Advisers will find it efficient to automate some portion of the reporting process.

And if you were thinking of forming multiple state-registered advisers, each with just under $150 million AUM to avoid Form PF, that will not work. As stated in an SEC release in July 2011,12 the SEC thought of this possible loophole:

Generally, a separately formed advisory entity that operates independently of an affiliate may be eligible for an exemption if it meets all of the criteria set forth in the relevant rule. However, the existence of separate legal entities may not by itself be sufficient to avoid integration of the affiliated entities. The determination of whether the advisory businesses of two separately formed affiliates may be required to be integrated is based on the facts and circumstances.

To try to claim otherwise would, in the view of the SEC, be inconsistent with the intent of Congress in establishing the exemption’s $150 million threshold and would violate section 208(d) of the Advisers Act, which prohibits any person from doing indirectly or through or by any other person any act or thing that would be unlawful for such person to do directly. Accordingly, the SEC would treat as a single adviser two or more affiliated advisers that are separately organized but operationally integrated, which could result in a requirement for one or both advisers to register.

Advisers who are also registered with the CFTC should also review our recent Investment Management Alert, “SEC and CFTC Working on Regulatory Harmonization” that discusses the application of Form PF to commodity pool operators (CPOs) and commodity trading advisors (CTAs) registered with the CFTC.


1 Adopting release available at PF itself is available at

2 Section 202(a)(29) of the Advisers Act defines the term “private fund” as “an issuer that would be an investment company, as defined in section 3 of the Investment Company Act [of 1940, as amended (the 1940 Act)], but for section 3(c)(1) or 3(c)(7) of that Act.” Section 3(c)(1) of the 1940 Act provides an exclusion from the definition of “investment company” for any “issuer whose outstanding securities (other than short-term paper) are beneficially owned by not more than one hundred persons and which is not making and does not presently propose to make a public offering of its securities.” Section 3(c)(7) of the 1940 Act provides an exclusion from the definition of “investment company” for any “issuer, the outstanding securities of which are owned exclusively by persons who, at the time of acquisition of such securities, are qualified purchasers, and which is not making and does not at that time propose to make a public offering of such securities.” The term “qualified purchaser” is defined in section 2(a)(51) of the 1940 Act.

3 For purposes of Form PF, the definition of “hedge fund” includes any private fund (other than a “securitized asset fund” – meaning private fund whose primary purpose is to issue asset-backed securities and whose investors are primarily debt-holders):

(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).

4 For purposes of Form PF, 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.

5 For purposes of Form PF, a “liquidity fund” is any private fund 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.

6 The level of information requested is enhanced concerning any hedge fund that has a net asset value (individually or in combination with any feeder funds, parallel funds and/or dependent parallel managed accounts) of at least $500 million as of the last day of any month in the fiscal quarter immediately preceding its most recently completed fiscal quarter.

7 For purposes of Form PF, “related persons” has the same definition as in Form ADV, meaning “advisory affiliates” and entities under common control.

8 For purposes of Form PF, a related person is separately operated if the adviser is not required to complete Section 7.A. of Schedule D to Form ADV with respect to that related person (concerning financial industry affiliations).

9 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.

10 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.

11 Our Client Alert detailing the original Form PF proposal – “The Joint SEC and CFTC Form PF Proposal – a.k.a. the ‘They Really Expect Us to Tell Them EVERYTHING About Our Funds Via Their New Fancy Form’ Proposal” – is available at

12 See Release No. IA-3222 containing the final rule for “Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers With Less Than $150 Million in Assets Under Management, and Foreign Private Advisers” and available at

Gregory J. Nowak, Matthew R. Silver and Janaki Rege Catanzarite

Written by

Gregory J. Nowak
Phone: 215.981.4893
Fax: 215.981.4750

Matthew R. Silver
Phone: 215.981.4117
Fax: 215.981.4750

Janaki Rege Catanzarite

More Resources on the Dodd-Frank Act

For additional information, please visit Pepper's Financial Services 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.

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