On October 26, 2011, the Securities and Exchange Commission ("SEC") adopted a new rule (the "Reporting Rule") requiring advisers to private funds, including hedge funds, private equity funds, real estate funds and funds of funds, to periodically report information on a confidential basis on Form PF to the Financial Stability Oversight Council ("FSOC") in order for the FSOC to evaluate systemic risk in the U.S. financial markets. The Commodity Futures Trading Commission ("CFTC") is expected to approve a companion rule within the next week for commodity pool operators and commodity trading advisers registered with the CFTC. The content of the report depends on the type of fund, and the timing of the reporting depends on the type of fund and the amount of assets under management of the adviser. The text of the rule has not yet been released by the SEC

Background

The Rule implements Sections 404 and 406 of the The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") and requires SEC registered investment advisers with at least $150 million in private fund assets under management to periodically file Form PF.

The frequency of reporting and the information to be provided depend on whether an adviser is a "large private fund adviser" or a "smaller private fund adviser," and whether the fund is a hedge fund, a private equity fund or a liquidity fund.

“Large private fund advisers” are:

  • Advisers with at least $1.5 billion in assets under management attributable to hedge funds.
  • Liquidity fund advisers with at least $1 billion in combined assets under management attributable to liquidity funds and registered money market funds.
  • Advisers with at least $2 billion in assets under management attributable to private equity funds.

All other advisers are considered smaller private fund advisers.

Filing and Information Requirements

Large private fund advisers

Large private fund advisers must provide more detailed information than smaller advisers. The focus and frequency of the reporting depends on the type of private fund the adviser manages.

  • Large hedge fund1 advisers must file Form PF to update information regarding the funds they manage within 60 days of the end of each fiscal quarter (instead of 15 days in the rule proposal). These advisers must report on an aggregated basis information regarding exposures by asset class, geographical concentration, and turnover by asset class. In addition, for each managed hedge fund having a net asset value of at least $500 million, these advisers are required to 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.
  • Large liquidity fund2 advisers must file Form PF to update information regarding the liquidity funds they manage within 15 days of the end of each fiscal quarter. These advisers must provide information on the types of assets in each of their liquidity fund’s portfolios, certain information relevant to the risk profile of the fund, and the extent to which the fund has a policy of complying with all or aspects of the Investment Company Act’s Rule 2a-7.
  • Large private equity fund3 advisers must file Form PF annually within 120 days of the end of the fiscal year. They must 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.

Smaller private fund advisers

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

Compliance Dates

Most private fund advisers 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.

The following advisers 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:

  • Advisers with at least $5 billion in assets under management attributable to hedge funds.
  • Liquidity fund advisers with at least $5 billion in combined assets under management attributable to liquidity funds and registered money market funds.
  • Advisers with at least $5 billion in assets under management attributable to private equity funds.