SEC Staff Guidance Regarding Form PF

June 14, 2012


On June 8, 2012, the staff of the Securities and Exchange Commission’s (the “SEC”) Division of Investment Management (the “Staff”) issued Frequently Asked Questions regarding Form PF. Under the new reporting rules adopted jointly by the SEC and the Commodity Futures Trading Commission (the “CFTC”) on October 31, 2011,[1] private fund advisers with at least $150 million in private fund assets under management are required to file certain periodic reports on Form PF. The FAQs are organized around five topics: hedge funds, liquidity funds, private equity funds, aggregation, and funds of funds.

Hedge Funds: A private fund should not be categorized as a commodity pool for private adviser reporting purposes if the fund’s commodity interest positions satisfy either of the de minimis tests in the CFTC Regulation 4.13(a)(3)(ii). A private adviser should only categorize a private fund as a hedge fund if the fund otherwise meets the definition of a hedge fund (i.e., the fund may charge a performance fee, employ large amounts of leverage, or engage in short selling) as of the last day of any month in the fiscal quarter immediately preceding the adviser’s most recently completed fiscal quarter. Accordingly, the categorization of a private fund as a hedge fund may vary from reporting period to reporting period, which may affect whether an adviser is a large hedge fund adviser for a particular reporting period. (Q1.1 and Q1.2)

Liquidity Funds: A private adviser to a fund that meets the definition of both a liquidity fund and a hedge fund must complete each section of Form PF applicable to hedge funds and liquidity funds. The adviser must include the fund in its calculation of hedge fund assets under management and liquidity fund assets under management. (Q2.1)

Private Equity Funds: A private fund should be categorized as a hedge fund if its fund documents permit it to employ short selling or significant amounts of leverage, even if it does not intend to engage in those activities. (Q3.1)

Aggregation: For purposes of determining whether a private fund adviser meets the various reporting thresholds, as provided in Instruction 5, the adviser must: (i) attribute to itself any private funds and parallel managed accounts advised by the adviser’s related person that are not separately operated and then (ii) subtract from the total amount any aggregated parallel managed accounts that are not “dependent” parallel managed accounts. (Q4.1)

Fund of Funds: For purposes of Instruction 7, a fund of funds may be treated as a disregarded private fund, and only reported in section 1b of Form PF, if the fund (i) invests substantially all of its assets in the equity of private funds, whether managed by the filer or another adviser, and (ii) aside from such private fund investments, holds only cash and cash equivalents and instruments acquired for the purpose of hedging currency exposure. In addition, the Staff clarified that even if an adviser advises only disregarded private funds or private funds whose investments may be disregarded under Instruction 7, the adviser is still required to file a Form PF if it, and its related persons, collectively manages at least $150 million in private fund assets. However, disregarded private funds and disregarded investments would not be included for purposes of determining whether the adviser meets the large private fund adviser thresholds or the $5 billion compliance date thresholds.

O’Melveny & Myers LLP is available to advise registered investment advisers to ensure compliance with all aspects of Form PF. For questions, please contact the attorneys listed above or any other O’Melveny & Myers LLP attorneys with whom you ordinarily work on related matters.

[1] To see the O’Melveny & Myers LLP client alert on the adoption of the new rules, please click here.