SEC and CFTC Adopt Reporting Requirements for Certain Advisers to Private Funds

On October 31, 2011, the Securities and Exchange Commission (the “Commission”) and the Commodity Futures Trading Commission (the “CFTC”) adopted new rules (the “PF Reporting Rules”) requiring certain private fund advisers to periodically report information to the Commission on Form PF, a new reporting form. The PF Reporting Rules impose different reporting requirements on investment advisers depending on the type and size of funds managed. Under the PF Reporting Rules, advisers that are dually registered with the Commission and the CFTC must satisfy certain CFTC filing requirements regarding private funds—and may satisfy other CFTC filing requirements regarding commodity pools that are not private funds—by periodically filing Form PF with the Commission. Information reported on Form PF will be kept confidential by the Commission and the CFTC, and will be used primarily by the Financial Stability Oversight Council in monitoring systemic risks to the U.S. financial system.

Reporting Advisers; Minimum Threshold

The PF Reporting Rules require investment advisers that are registered with the Commission and that have at least $150 million in private fund assets under management (“Reporting Advisers”) to file Form PF. Private funds include funds relying on an exemption from registration as an investment company under section 3(c)(1) or 3(c)(7) of the Investment Company Act, such as hedge funds, private equity funds and liquidity funds. For purposes of determining whether it meets the $150 million minimum reporting threshold to be classified as a Reporting Adviser required to file Form PF, an adviser must aggregate together:

• assets of managed accounts advised by such adviser that pursue substantially the same investment objective and strategy and invest in substantially the same positions as such adviser’s private funds, unless the value of those accounts exceeds the value of such private funds; and
• assets of private funds advised by any of the adviser’s related persons (e.g., officers, directors, employees and affiliates) other than related persons that are separately operated.

To avoid duplicative reporting, Reporting Advisers may exclude from Form PF and from calculations of reporting thresholds any assets invested in the equity of other private funds. In addition, Reporting Advisers with principal offices and places of business outside the United States may exclude any private fund that, during such Reporting Adviser’s last fiscal year, was not a United States person, was not offered in the United States, and was not beneficially owned by any United States person.

Reporting Advisers may report the private fund assets that they and their related persons manage on a single, combined Form PF.

Tiered Reporting Requirements

Under the PF Reporting Rules, Reporting Advisers are classified as either “large” or “smaller” Reporting Advisers. The amount of information required to be reported and the frequency of reporting differs for each classification.

Smaller Reporting Advisers

All Reporting Advisers other than those who fall within any of the categories of large Reporting Advisers outlined below will be required to file Form PF annually within 120 days of the end of their respective fiscal years to report basic information regarding the private funds they advise, such as fund:

• size;
• leverage;
• investor types and concentration;
• liquidity; and
• performance.

Smaller Reporting Advisers managing hedge funds must also report information about fund strategy, counterparty credit risk, and use of trading and clearing mechanisms.

Large Reporting Advisers

Large Reporting Advisers include:

(i) any Reporting Adviser with at least $1.5 billion in assets under management attributable to hedge funds¹ as of the end of any month in such Reporting Adviser’s prior fiscal quarter;
(ii) any Reporting Adviser with at least $1 billion in combined assets under management attributable to liquidity funds² and registered money market funds as of the end of any month in such Reporting Adviser’s prior fiscal quarter; and
(iii) any Reporting Adviser with at least $2 billion in assets under management attributable to private equity funds³ as of the last day of such Reporting Adviser’s most recently completed fiscal year.

Reporting requirements differ for each of the three categories of large Reporting Advisers with respect to both reporting frequency and the type of information that must be reported.

Large hedge fund Reporting Advisers must file Form PF quarterly within 60 days of the end of each fiscal quarter. Such Reporting 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, such Reporting Advisers must report certain information relating to that fund’s exposures, leverage, risk profile, and liquidity.

Large liquidity fund Reporting Advisers must file Form PF quarterly to update information regarding the liquidity funds they manage within 15 days of the end of each fiscal quarter. Such Reporting Advisers must provide information on the types of assets in each of their liquidity funds’ portfolios, certain information regarding each such fund’s risk profile, and whether the fund has a policy of complying with Rule 2a-7 under the Investment Company Act of 1940, which rule concerns registered money market funds.

Large private equity fund Reporting Advisers must file Form PF annually within 120 days of the end of the fiscal year. Such Reporting Advisers must provide information regarding portfolio company leverage, the use of bridge financing, and their funds’ investments in financial institutions.

Timing of Initial Filings

Most smaller and large Reporting Advisers must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, ending on or after December 15, 2012. However, Reporting Advisers with at least $5 billion of assets under management attributable to (i) hedge funds; (ii) liquidity funds and registered money market funds; and/or (iii) private equity funds must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, ending on or after June 15, 2012.

By Blake Hornick, Elaine Tippitt and Greg Sale

Blake Hornick is a partner in the firm’s New York office, Elaine Tippitt is a partner in the firm’s Houston office and Greg Sale is an associate in the firm’s Houston office. If you would like further information, please contact your Seyfarth Shaw LLP attorney, Blake Hornick at bhornick@seyfarth.com, Elaine Tippitt at etippitt@seyfarth.com, or Greg Sale at gsale@seyfarth.com.
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¹Under Form PF, a “hedge fund” generally is any private fund having any one of three common characteristics of a hedge fund: (a) a performance fee that takes into account market value; (b) high leverage; or (c) short selling.

²Under 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.

³Under 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.