On January 26, 2011, the Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) issued joint proposed rules under the Investment Advisers Act of 1940 (“Advisers Act”) and the Commodity Exchange Act (“CEA”) to implement certain provisions of Title IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), available at http://www.sec.gov/rules/proposed/2011/ia-3145.pdf. The proposed rules would create the Form PF, which is intended to assist the Financial Stability Oversight Council (“FSOC”) in its assessment of systemic risk in the U.S. financial system.1 The proposed Form PF would be filed electronically with the SEC, either annually or quarterly (as discussed below) and would not be publicly available. The SEC indicated that it currently anticipates the proposed Form PF having a compliance date of December 15, 2011, which would result in Form PF filings first being due in 2012.

 Who Must File Form PF

Under the proposed rules, any investment adviser required to register with the SEC that advises one or more private funds2 must file Section 1 of Form PF. “Large Private Fund Advisers” would be required to complete additional sections of the Form PF, which require more detailed information. “Large Private Fund Advisers” would include:

  • Advisers managing hedge funds3 with at least $1 billion in assets;
  • Advisers managing a liquidity fund4 and having combined liquidity fund and registered money market fund assets of at least $1 billion; and
  • Advisers managing private equity funds5 that collectively have at least $1 billion in assets.

Under the proposed rules, the SEC and CFTC only seek to require private fund advisers registered with the SEC to file Form PF and not those advisers that rely on an exemption from registration created by the Dodd-Frank Act or who are otherwise not required to register.

Frequency of Reporting

The proposed rules would require that private fund advisers other than Large Private Fund Advisers complete and file the Form PF on an annual basis. Such filing would be due no later than the last day on which the adviser can timely file its annual updating amendment to its Form ADV, which currently is 90 days after the end of the adviser’s fiscal year. Newly registered advisers would be required to file an initial Form PF within 15 days of the end of the next occurring calendar quarter after registering with the SEC. Large Private Fund Advisers would be required to complete and file a Form PF no later than 15 days after the end of each calendar quarter.

Form PF Disclosure

Section 1 of the proposed Form PF, which would be required to be completed by all private fund advisers would include basic information including: (i) identifying information, about the adviser, (ii) aggregate total and net assets under management by the adviser, and (iii) the amount of those assets attributable to certain types of private funds. A private fund adviser would also have to identify each private fund it advises, along with each fund’s gross and net assets, and basic information about each fund’s aggregate derivatives positions, borrowings, concentration and performance. Section 1 also requires specific disclosure relating to hedge funds managed by the adviser, including their investment strategies, percentage of the fund’s assets managed using computer-driven trading algorithms, significant trading counterparty exposures (including identity of counterparties), and trading and clearing practices.

Sections 2, 3, and 4 of the proposed Form PF contain more detailed disclosure on systemic risk related information and are to be completed by Large Private Fund Advisers depending on what types of assets they manage. Certain, but not all, disclosure items are as follows:

  • Hedge fund assets – A Large Private Fund Adviser would have to provide aggregate information about the hedge funds it advises, including aggregate market value of assets invested (on a short and long basis) in different types of securities and commodities, duration of fixed income portfolio holdings, assets’ interest rate sensitivity, turnover rate of an adviser’s aggregate portfolios, as well as a geographic breakdown of investments held by the hedge funds it advises.
  • Liquidity fund assets – For each liquidity fund managed, a Large Private Fund Adviser would have to provide information on valuation methods and statistical asset information, the amount of assets invested in different types of instruments broken down by maturity, borrowings information and certain information regarding investor base, including concentration, gating and redemption policies, and investor liquidity.
  • Private equity fund assets – For each private equity fund managed, a Large Private Fund Adviser would have to provide information on borrowings and guarantees, disclosure on each fund’s portfolio companies, including heightened disclosure for financial industry portfolio companies, and a breakdown of investments by industry and geography

While the SEC generally intends to keep the Form PF information identifiable to a particular adviser or private fund confidential, advisers should note that (a) the SEC may use the information collected through Form PF in an enforcement action and (b) the Dodd-Frank Act provisions intended to shield the SEC from being compelled to reveal certain information does not prevent the SEC from complying with requests for information from any other federal department or agency or any self-regulatory organization for use within the scope of its jurisdiction.

SEC/CFTC Request for Comment

The SEC and CFTC have requested comment on their rule proposal, including on the new Form PF itself. Comments are due by 60 days from publication in the Federal Register.