The SEC and CFTC have proposed joint rules regarding reporting by registered investment advisers to private funds and certain commodity pool operators, or CTOs, and commodity trading advisers, or CTAs, pursuant to Title IV of the Dodd-Frank Act. Among other things, the SEC defines the terms “hedge fund” and “private equity fund” in the proposed rules.

Reporting would be accomplished by filing new Form PF with the SEC which looks more difficult than a tax return. Form PF is comprised of 63 pages of forms, instructions and glossaries. The report would not be made public pursuant to the confidentiality provisions of the Dodd-Frank Act. The report will be filed electronically on a yet to be designed system and would require payment of a fee which has not yet been determined. Larger funds may have to begin reporting by January 15, 2012.

Persons Required to Report

The SEC is proposing a new Rule 204(b)-1 under the Advisers Act to require that SEC-registered investment advisers file Form PF if they advise one or more private funds. For registered CPOs and CTAs that are also registered as investment advisers with the SEC and advise a private fund, this report also would serve as substitute compliance for a portion of the CFTC’s proposed systemic risk reporting requirements under proposed Commodity Exchange Act rule 4.27(d).

Timing of Filings

Smaller private fund advisers will be required to report basic information about the operations of its private funds on Form PF once each year. However, “Large Private Fund Advisers” will be required to submit this basic information each quarter along with additional systemic risk related information required by Form PF concerning certain of their private funds. Large Private Fund Advisers are:

  • Advisers managing hedge funds that collectively have at least $1 billion in assets as of the close of business on any day during the reporting period for the required report;
  • Advisers managing private equity funds that collectively have at least $1 billion in assets as of the close of business on the last day of the quarterly reporting period for the required report; and
  • Advisers managing a liquidity fund and having combined liquidity fund and registered money market fund assets of at least $1 billion as of the close of business on any day during the reporting period for the required report.

Hedge funds and liquidity funds would be required to measure the $1 billion threshold daily. Private equity funds would be required to measure the threshold quarterly.

Hedge Funds, Private Equity Funds and Liquidity Funds

Proposed Form PF would define “hedge fund” as any private fund that:

  • has a performance fee or allocation calculated by taking into account unrealized gains;
  • 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
  • may sell securities or other assets short.

A “liquidity fund” would be defined as 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.

Finally, a “private equity fund” would be defined as 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.

More on Form PF

Each investment adviser required to file Form PF would have to complete Section 1 of the Form. Form PF would require private fund advisers who had at least $1 billion in hedge fund assets under management as of the close of business on any day during the reporting period to complete Section 2. Section 3 of Form PF would have to be completed by private fund advisers advising a liquidity fund and managing at least $1 billion in combined liquidity fund and registered money market fund assets as of the close of business on any day in the reporting period. Finally, Section 4 of Form PF would have to be completed by private fund advisers managing at least $1 billion in private equity fund assets as of the close of business on the last day of the reporting period.

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