Overview

On October 31st, 2011 the Securities and Exchange Commission (SEC) and the CFTC adopted a new rule requiring investment advisers to periodically file the new Form PF if they are registered or required to register with the SEC, have at least $150 million in private fund assets under management. If the adviser has principal offices outside the US, then funds that are not US persons and are not offered or owned in the US can be disregarded for the purposes of the Form.

The Dodd-Frank Act, sections of which are implemented by this new rule, also amended the Advisers Act to generally require that advisers to hedge funds register with the SEC, by repealing an exemption based on a minimum number of clients.

Smaller hedge fund advisers that are required to file Form PF will be required to file on an annual basis. Large hedge fund advisers will be required to provide additional data and to file quarterly.

A private fund is considered a large hedge fund adviser for a fiscal quarter if they had at least $1.5 billion in regulatory assets under management calculated in accordance with Form ADV and attributable to hedge funds as of the last day of any month in the quarter.

In determining whether you are a large hedge fund adviser, you are required to include hedge fund assets under management of any related person, as related person is defined for the purposes of Form ADV, unless that related person is separately operated.

Reporting Guidelines – Overview

All advisers required to file Form PF are required to complete all parts of Section 1.

Section 1a requires advisers to report regulatory assets under management and net assets under management by type of fund.

Section 1b requires information for each fund on:

  • Gross asset value and net asset value
  • Investments in equity of other funds
  • Value of parallel managed accounts
  • Borrowings and the types of creditors
  • Aggregate value of all derivative positions of the fund
  • Values of assets and liabilities by GAAP-based valuation assumption level
  • Investor concentration by investor size and investor type
  • Performance (gross and net of fees)

Section 1c requires information for each fund on:

  • Investment style
  • Percentage of the fund’s assets managed using algorithmic trading
  • Counterparties to which the fund has the greatest mark-to-market net credit exposure
  • Counterparties that have the greatest mark-to-market net credit exposure to the fund
  • Trading and clearing practices (listed vs. OTC, CCP vs. bilateral, etc.)
Reporting Guidelines – Large Advisers

What are the reporting requirements for large hedge fund advisers?

Large hedge fund advisers will be required to report additional aggregated information in Section 2a as well as separate information in Section 2b on each qualifying hedge fund it advises.

The aggregate information required in Section 2a includes relates to:

  • Market value of assets invested (on a short and long basis) by security type
  • Duration or similar metric for fixed income portfolio holdings (including asset-backed securities)
  • Turnover value by asset class for each month during the reporting period
  • Geographic concentration of investments held

The information for qualifying funds of large hedge fund advisers required in Section 2b relates to:

  • Market value of assets invested (on a short and long basis) by security type
  • Duration or similar metric for fixed income portfolio holdings (including asset-backed securities)
  • Portfolio liquidity and position concentration
  • Collateral and other credit support with respect to top counterparties
  • VaR if it is regularly calculated for the fund
  • Stress testing based upon specific market factors: equity prices, risk free interest rates, credit spreads, currency rates, commodity prices, implied volatilities, ABS default rates, corporate bond default rates
  • Secured and unsecured borrowing by every month in the quarter
  • Derivatives mark-to-market value and collateral posted against derivatives
  • Financing liquidity by specified periods
  • Creditor concentration for largest creditors
  • Size of investor side-pocket arrangements
  • Restrictions on investor withdrawals and redemptions
  • Investor liquidity
Frequently Asked Questions

What is Form PF?

On October 31st, 2011, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) adopted new rules to implement provisions of the Dodd-Frank Act. The new SEC rule requires investment advisers to periodically file the new Form PF if they are registered or required to register with the SEC and have at least $150 million in private fund assets under management. If the adviser has principal offices outside the US, then funds that are not US persons and are not offered or owned in the US can be disregarded for the purposes of the Form.

The Dodd-Frank Act also amended the Advisers Act to generally require that advisers to hedge funds register with the SEC, by repealing an exemption based on a minimum number of clients.

Smaller hedge fund advisers that are required to file Form PF will be required to file on an annual basis. Large hedge fund advisers (see below) will be required to provide additional data and to file quarterly.

Who is considered a large hedge fund adviser?

You are a large hedge fund adviser for a fiscal quarter if you had at least $1.5 billion in regulatory assets under management calculated in accordance with Form ADV and attributable to hedge funds as of the last day of any month in the preceding quarter.

In determining whether you are a large hedge fund adviser, you are required to include hedge fund assets under management of any related person (as defined by Form ADV), unless that related person is separately operated.

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Frequently Asked Questions

Is information required to be reported in aggregate or for each fund separately?

Some information is required to be reported in aggregate and some information separately for all hedge funds under management by every adviser that files. Large hedge fund advisers have to report more detailed aggregate information. In addition, more detailed information is to be reported separately for each fund that is a qualifying hedge fund (see below) managed by a large hedged fund adviser.

A qualifying hedge fund is one that has a net asset value of at least $500 million as of the last day of any month in the preceding fiscal quarter. In determining the threshold, feeder funds, parallel funds and certain parallel managed accounts have to be included in the calculation.

How are master-feeder structures, parallel fund structures and parallel managed accounts to be handled?

Information on master-feeder arrangements or parallel fund structures can be provided either in the aggregate or separately, as long as it is done consistently throughout the form. For purposes of determining whether you meet a reporting threshold, you must aggregate parallel funds, dependent parallel managed accounts and master-feeder funds.

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Frequently Asked Questions

What are the reporting requirements common to all advisers and funds?

All advisers required to file Form PF are required to complete all parts of Section 1.

Section 1a requires advisers to report regulatory assets under management and net assets under management by type of fund.

Section 1b requires information for each fund on:

  • Gross asset value and net asset value
  • Investments in equity of other funds
  • Value of parallel managed accounts
  • Borrowings and the types of creditors
  • Aggregate value of all derivative positions of the fund
  • Values of assets and liabilities by GAAP-based valuation assumption level
  • Investor concentration by investor size and investor type
  • Performance (gross and net of fees)

Section 1c requires information for each fund on:

  • Investment style
  • Percentage of the fund’s assets managed using algorithmic trading
  • Counterparties to which the fund has the greatest mark-to-market net credit exposure
  • Counterparties that have the greatest mark-to-market net credit exposure to the fund
  • Trading and clearing practices (listed vs. OTC, CCP vs. bilateral, etc.)
More >>
Frequently Asked Questions

What are the reporting requirements for large hedge fund advisers?

Large hedge fund advisers will be required to report additional aggregated information in Section 2a as well as separate information in Section 2b on each qualifying hedge fund it advises.

The aggregate information required in Section 2a relates to:

  • Market value of assets invested (on a short and long basis) by security type
  • Duration or similar metric for fixed income portfolio holdings (including asset-backed securities)
  • Turnover value by asset class for each month during the reporting period
  • Geographic concentration of investments held

The information for qualifying funds of large hedge fund advisers required in Section 2b relates to:

  • Market value of assets invested (on a short and long basis) by security type
  • Duration or similar metric for fixed income portfolio holdings (including asset-backed securities)
  • Portfolio liquidity and position concentration
  • Collateral and other credit support with respect to top counterparties
  • VaR, if it is regularly calculated for the fund
  • Stress testing based upon specific market factors: equity prices, risk free interest rates, credit spreads, currency rates, commodity prices, implied volatilities, ABS default rates, corporate bond default rates
  • Secured and unsecured borrowing by every month in the quarter
  • Derivatives mark-to-market value and collateral posted against derivatives
  • Financing liquidity by specified periods
  • Creditor concentration for largest creditors
  • Size of investor side-pocket arrangements
  • Restrictions on investor withdrawals and redemptions
  • Investor liquidity
More >>
Frequently Asked Questions

How much effort will be required to file Form PF?

We believe each filing, especially the initial filing, will require significant planning and coordination with your service providers, as well as a significant allocation of internal staff for data preparation.

Where will I be able to source the data necessary to complete the form?

In order to complete the form, hedge fund advisers will be required to coordinate across a number of internal groups including:

  • Legal/compliance
  • Financial reporting
  • Risk management
  • Technology

How can I trust the data?

Form PF data will come from multiple systems. Tracking and organizing the required data will need careful planning and execution. Many trades are not accurately reflected in different systems and a complete reconciliation will be required to attest to the accuracy of the filing. Advisers will need a robust data management solution, capable of aggregating data and providing adequate audit trails.

Will my data be available to the public?

Data submitted on Form PF will not generally be made public by the regulators. However, given that investors are aware that advisers now have a lot of information not previously collected and summarized, we generally expect investors will ask advisers to make the information available to them, subject to applicable confidentiality and other legal considerations.

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Frequently Asked Questions

When will I be required to file the Form PF for the first time?

Any adviser having at least $5 billion in hedge fund assets under management as of March 31, 2012 will be required to file within 60 days following June 30, 2012, if that is the end of their fiscal quarter. Other hedge fund advisers will generally have to file within 60 days following December 31, 2012, if they are a large hedge fund adviser or within 120 days if they are not a large hedge fund adviser.

When should I start to prepare for filing?

The actual required date of filing of the Form depends on the adviser’s size. However, preparing the filing is complicated due to the data collection, analytics and aggregations necessary. Addressing these issues may require substantial effort in the improvement of existing business processes and technology. So we are encouraging hedge funds to begin the planning and execution as soon as possible.

Why Form PF with RiskONE from ConceptONE?

ConceptONE believes its risk management and aggregation solution is ideally suited to perform the necessary analytics and aggregations required to prepare Form PF responses. In our capacity as a risk reporting solution for 100+ clients, ConceptONE draws from over 40 disparate data sources on a daily basis, many of which hold data that will be required in order to fully comply with the Form PF requirements.

Furthermore, one of our core strengths is our data management capability which is well-suited to the collection and processing of the data required for Form PF. Given the complexity of the Form PF requirements, advisers will need the ability to gather voluminous amounts of data from a variety of sources as well as the ability to perform a number of different calculations.