The SEC staff recently released an updated set of questions and answers in its “Frequently Asked Questions” relating to Form PF, and several of these clarifications may be useful to private fund advisers. Among the updates, the SEC noted a few situations that may require clarifying remarks in Question 4 and clarified the reporting of values of assets and liabilities in Question 14.
For instance, the SEC clarified when an adviser should indicate whether it has disregarded or included a reporting fund’s investment in other private funds for purposes of reporting on Form PF in Question 4. Also, the SEC confirmed that a private fund may be deemed to be a hedge fund if its organizational documents allow the fund to either employ large amounts of leverage or sell assets short, regardless of whether the fund actually utilizes the leverage or engages in short sales. However, the SEC noted that if a private fund is represented to investors as a type of fund other than a hedge fund (i.e., a private equity fund, a real estate fund, or a venture capital fund), the adviser may include a note in Question 4 indicating (i) the category of private fund the adviser believes better describes the fund and (ii) why the reporting fund meets the definition of a hedge fund.
Additionally, the SEC clarified that with respect to reporting the value of assets and liabilities in Question 14, an adviser should include all assets and liabilities in the “cost-based” column that would be presented in a fund’s financial statements that use a measurement attribute other than fair value. The SEC noted that the sum of the amount entered in the “assets” row in Question 14 should equal approximately the reporting funds gross assets reported in Question 8 (except for funds with uncalled commitments included in their gross assets) and similarly, the sum of the amount of “liabilities” entered in Question 14 should equal approximately the total liabilities reported on the fund’s financial statements. The SEC further noted that cash and cash equivalents should also be included as “assets” for purposes of Question 14.
Form PF filers should review their Form PF filings (particularly Question 4) to determine whether any additional disclosure or clarification is necessary.