United States

SEC and CFTC propose private fund adviser reporting form Form PF


On Jan. 26, 2011, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) proposed new rules requiring registered investment advisers currently advising one or more private funds (private fund advisers) to file a Form PF.

Form PF purpose

The primary reasons for the rule are:

  • To assist the Financial Stability Oversight Council (FSOC) in assessing systemic risk within the United States financial system
  • To assist the SEC and CFTC in their regulatory programs, including examinations and investigations and investor protection efforts relating to Private Fund Advisers

The necessity for Form PF stems from the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) signed by President Obama on July 21, 2010. The Dodd-Frank Act requires the FSOC to monitor the financial services' marketplace in order to identify potential threats to the financial stability of the United States.

Basic definitions

The proposed rules define three types of private funds, as follows:

Hedge funds – any private fund that (1) has a performance fee or allocation calculated by taking into account unrealized gains; (2) may utilize leverage; or (3) may sell securities or other assets short. Form PF would provide information to measure whether strategies could have systemic implications affecting credit or trading counterparties, prime brokers, or financial markets. The information will also allow the FSOC to examine how other stresses in the financial system will affect hedge funds.

Liquidity funds – 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. Form PF would collect specific information from liquidity funds that would permit the FSOC to evaluate a liquidity fund's inclination to liquidity runs. Depending on the size of the liquidity fund, it could pose systemic risk to the financial markets.

Private equity funds – 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.

Form PF would require private equity funds to report information about their activities and about their portfolio companies to the FSOC with the intention of monitoring systemic risk. The FSOC will monitor their transaction financings and how those affect the lending institutions.

The proposed rules also stipulate that funds with greater than $1 billion assets under management would be deemed large private fund advisers. The SEC estimates that these requirements would represent 80 percent of the U.S. hedge fund industry, 85 percent of the U.S. private equity fund industry, and approximately 80 advisers of liquidity funds.

Form PF

Section 1: Section 1 of Form PF must be completed by all private fund advisers. Section 1 requests the following information:

  • The adviser's name,
  • The names of any related persons,
  • Regulatory and net assets under management,
  • Regulatory and net assets under management by type of fund.

In addition, Section 1 seeks information about the investment adviser's individual private funds:

  • The fund's gross and net assets
  • The aggregate notional value of its derivative positions
  • Any borrowing by classification of the creditor
  • The concentration of the investor base
  • Monthly and quarterly performance information
  • For each Hedge Fund (as defined above):
    • The investment strategies,
    • The percentage of assets managed by computer-driven trading algorithms
    • The five trading counterparties to which the fund has the greatest exposure
    • Information regarding trading and clearing practices

Section 2: Section 2 only applies to private fund advisers managing at least $1 billion in hedge fund assets at the end of any given day during the fiscal year. The information requested includes aggregate information for all the funds it advises, such as:

  • The market value of assets invested in different types of securities and commodities
  • The duration of fixed income portfolio holdings
  • The turnover rate of the adviser's aggregate portfolios
  • The geographic breakdown of the investments

For individual funds with a net asset value greater than $500 million, the information requested would be the same as the information requested above, just reported separately by each fund. In addition, the following information is required:

  • Portfolio liquidity
  • The number of open positions
  • Information on each open position exceeding 5 percent of net asset value (NAV)
  • Information on the top five trading counterparties
  • Certain risk metrics information (VaR)
  • Impact on the fund's portfolio from specified changes to certain identified effect of market factors
  • Monthly breakdown of each the fund's secured and unsecured borrowing and its derivatives exposures and information on the value of collateral and letters of credit supporting the secured borrowing and derivatives exposures and the types of creditors,
  • The breakdown of the fund's committed financing
  • Information on the fund's use of side-pockets and restrictions on investor withdrawals and redemptions
  • Breakdown of the percentage of the fund's NAV that is locked in for different periods of time

Section 3: Section 3 only applies to private fund advisers managing at least $1 billion in liquidity fund assets at the end of any given day during the fiscal year. These advisers are required to report:

  • The pricing method used in computing its net asset value per share
  • How the adviser is in compliance with Rule 2a-7 of the Investment Company Act of 1940
  • Information regarding the fund's portfolio, such as:
    • NAV
    • NAV per share
    • Market-based NAV per share
    • Weighted average maturity
    • Weighted average life
    • Seven-day gross yield, amount of daily and weekly liquid assets and the amount of assets with a maturity greater than 397 days in regards to the portfolio
  • Information on the secured or unsecured borrowing of the fund and if the fund has a committed liquidity facility
  • Product exposure by maturity
  • Information for each open position that represents 5 percent or more of the fund's NAV
  • Other information including the private fund's concentration of the investor base, gating and redemption policies, investor liquidity, and the percentage of the fund purchased using securities lending collateral

Section 4: Section 4 only applies to private fund advisers managing at least $1 billion in private equity fund assets at the end of any quarter. These advisers are required to report:

  • The value of borrowings and guarantees of the fund and value as percentage of unfunded commitments
  • The leverage of the controlled portfolio companies, the weighted average debt-to-equity ratio, and range of debt-to-equity ratio among the controlled portfolio companies
  • The breakdown of indebtedness of a controlled portfolio company by maturity
  • Whether the fund or any of the controlled portfolio companies has defaulted on any of its debt within the reporting period
  • Whether the fund is being provided with bridge financing, information about the institutions providing the financing
  • Investments in the financial industry by portfolio companies
  • Investment breakdown by industry and geography

Exempt reporting advisers

The recently adopted Dodd-Frank Act created exemptions from SEC registration for advisers of venture capital funds or solely private funds with less than $150 million in assets under management.

When to file Form PF

Private fund advisers: Private fund advisers NOT considered large private fund advisers are required to file Form PF annually, within 90 days of their fiscal year. The initial Form PF needs to be filed by March 30, 2012.

Large private fund advisers: Large private fund advisers are required to file Form PF quarterly, within 15 days after the end of each quarter. Frequent reporting will give the FSOC a more accurate view of trends in systemic risk. The initial Form PF needs to be filed by Jan. 15, 2012.

Format and fees

Filing system: The SEC will designate an electronic system through which Form PF should be filed. The SEC realizes the necessary security and confidentiality precautions necessary in the electronic system they choose.

Filing fees: Private fund advisers filing Form PF will be required to pay fees to the operator of the Form PF filing system. The fees will increase depending on the proportion of the system needs; large private fund advisers filing fees will be the highest.


The comment period for the proposed rules ended in April 2011. We anticipate that the final rules will be released later this fall. The proposed rules are steps in the right direction by SEC and CFTC to identify and monitor potential systemic risk posed by private funds, however, it will significantly increase reporting time and cost for private fund advisers.

We encourage all advisers to assess their ability to accumulate and process the requested information well in advance of the impending reporting dates.

Gireesh Chugh, partner, RSM US LLP, 212.372.1086.