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Private Fund Risk Reporting

December 8, 2011

Photo by earthworm. Some rights reserved.

On November 16th, the CFTC and SEC published new rules under the Commodity Exchange Act and the Investment Advisers Act of 1940 implementing provisions of Title IV of the Dodd-Frank Act. The SEC’s provisions require registered investment advisers advising one or more private funds and having at least $150 million in private fund assets under management to file Form PF with the SEC. The CFTC’s rule contains similar provisions for commodity pool operators and commodity trading advisors. Only the SEC’s provisions are addressed here.

The information supplied on Form PF – to be filed via EDGAR but nevertheless, like new Form 13H, to remain confidential –  is meant to assist the Financial Stability Oversight Council in its assessment of systemic risk in the U.S. financial system. To do so, the SEC divided private fund advisers into two groups, large advisers and smaller advisers. The amount of information reported and the frequency of reporting depends on the group to which the adviser belongs. 

“Large private fund advisers” are:

  • Advisers with at least $1.5 billion in assets under management attributable to hedge funds.
  • Liquidity fund advisers with at least $1 billion in combined assets under management attributable to liquidity funds and registered money market funds.
  • Advisers with at least $2 billion in assets under management attributable to private equity funds.

All other private fund advisers are considered smaller private fund advisers.

Smaller Private Fund Advisers. Smaller private fund advisers must complete and file the 11-page section 1 of Form PF once a year within 120 days of the end of the fiscal year. This section requests basic information regarding the private funds advised, and limited information regarding size, leverage, investor types and concentration, liquidity, and fund performance. Smaller advisers managing hedge funds must also report information about fund strategy, counterparty credit risk, and use of trading and clearing mechanisms.

Larger Advisers. All larger advisers must complete the entire 42-page Form PF. Large private fund advisers must update information regarding the hedge funds they manage within 60 days of the end of each fiscal quarter. These 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, these advisers are required to report certain information relating to that fund’s exposures, leverage, risk profile, and liquidity. Large hedge fund advisers are not required to report position-level information.

Large liquidity fund advisers must file Form PF to update information regarding the liquidity funds they manage within 15 days of the end of each fiscal quarter. These advisers must provide information on the types of assets in each of their liquidity fund’s portfolios, certain information relevant to the risk profile of the fund, and the extent to which the fund has a policy of complying with all or aspects of the Investment Company Act’s principal rule concerning registered money market funds (Rule 2a-7).

Large private equity fund advisers must file Form PF annually within 120 days of the end of the fiscal year. They must respond to questions focusing primarily on the extent of leverage incurred by their funds’ portfolio companies, the use of bridge financing, and their funds’ investments in financial institutions.

Implementation. There will be a two-stage phase-in period for compliance with Form PF filing requirements. Most private fund advisers will be required to begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after December 15, 2012.

However, the following advisers must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after June 15, 2012:

  • Advisers with at least $5 billion in assets under management attributable to hedge funds.
  • Liquidity fund advisers with at least $5 billion in combined assets under management attributable to liquidity funds and registered money market funds.
  • Advisers with at least $5 billion in assets under management attributable to private equity funds.
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