Articles By Topic
By Topic: Form PF
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From Vol. 5 No.4 (Jan. 26, 2012)
Form PF: Operational Challenges and Strategic, Regulatory and Investor-Related Implications for Hedge Fund Managers
In October 2011, the Securities and Exchange Commission and the Commodity Futures Trading Commission adopted the much-anticipated final rule for Form PF, which requires reporting of risk measurement information by registered investment advisers regarding the private funds they manage. As hoped, the agencies made a number of modifications to the proposed form to ease some of the burdens associated with these new risk-reporting requirements. Specifically, the agencies established a minimum assets under management threshold for filing Form PF, raised the threshold for detailed hedge fund reporting, extended the length of time hedge fund advisers would have to file and the start date for compliance. However, the core elements of the new reporting requirements remain largely unchanged, especially since there has been no substantial reduction in the volume of information required. Therefore, although some improvements to the form have been made, Form PF is still likely to pose significant challenges for many hedge fund managers, especially with regard to implementation. This guest article discusses some of the major operational challenges that many hedge funds will face in the preparation and implementation required to complete Form PF and provides guidance on some of the larger strategic and investor-related implications stemming from Form PF. The authors of this article are Samuel K. Won, the Founder and Managing Director of Global Risk Management Advisors, and David Vaughan, a Partner at Dechert LLP. See “David Vaughan Returns to Dechert from SEC Division of Investment Management,” The Hedge Fund Law Report, Vol. 4, No. 31 (Sep. 8, 2011). This article begins with a discussion of the Form PF reporting requirements. The article then explains the operational challenges that many hedge fund managers face in accurately and timely gathering and reporting information required by Form PF. The article then moves to a discussion of the strategic, regulatory and investor-related implications raised by Form PF. Finally, the article concludes with a discussion of recommendations designed to address the operational and other challenges hedge fund managers face with respect to Form PF.
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From Vol. 4 No.42 (Nov. 23, 2011)
Speakers at Walkers Fundamentals Hedge Fund Seminar Provide Update on Hedge Fund Terms, Governance Issues and Regulatory Developments Impacting Offshore Hedge Funds
On November 8, 2011, international law firm Walkers Global (Walkers) held its Walkers Fundamentals Hedge Fund Seminar in New York City. Speakers at this event addressed various topics of current relevance to the hedge fund industry, including: recent trends in offshore hedge fund structures; hedge fund fees and fee negotiations; fund lock-ups; fund-level and investor-level gates; fund wind-down petitions and the appointment of fund liquidators; corporate governance issues; D&O insurance; fund manager concerns with Form PF; and offshore regulatory developments, such as proposed legislation requiring registration of certain master funds in the Cayman Islands, the EU’s Alternative Investment Fund Manager (AIFM) Directive and the British Virgin Islands (BVI) Securities & Investment Business Act (SIBA). This article summarizes the key points discussed at the conference relating to each of the foregoing topics and others.
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From Vol. 4 No.40 (Nov. 10, 2011)
Key Legal and Operational Considerations in Connection with Preparing, Filing and Updating Form PF (Part Two of Three)
Form PF generally calls for voluminous disclosure by private fund managers to regulators of fund, investor, counterparty, credit and other information. The form is legally complex and operationally challenging. On the legal side, its novelty means that there is no direct market practice to assess the form’s application or to guide completion. On the operational side, its novelty means that managers and service providers do not have dedicated systems in place to create, organize, scrub, update and secure the relevant data. See “Technical and Operational Considerations for Hedge Fund Managers in Connection with Preparing, Filing and Updating Form PF,” The Hedge Fund Law Report, Vol. 4, No. 37 (Oct. 21, 2011). To bring some clarity to the complexity, on October 25, 2011, Advise Technologies and The Hedge Fund Law Report co-sponsored a seminar on Form PF. The seminar consisted of two panels, the first focusing on legal questions raised by the form and the second focusing on operational considerations in connection with the form. At an open meeting held on October 26, 2011, the SEC adopted Rule 204(b)-1 under the Investment Advisers Act of 1940, requiring periodic reporting by private fund managers on Form PF. (The SEC and CFTC jointly issued the final rule release on October 31, 2011.) Despite this chronology, the vast majority of the discussion at the seminar remains very relevant to a wide range of hedge fund industry participants; most of the changes from the proposed form to the final form involved thresholds and timing provisions, while the discussion at the seminar focused on market color, best practices, trends and precedent. For the benefit of those that could not attend the seminar – and as a recap for those who did attend – this article summarizes and, as relevant, updates the discussion during the legal panel. In particular, this article discusses: the four assets under management (AUM)-based categories that trigger the frequency and content of Form PF filing obligations for hedge fund managers; the definition of a “hedge fund” for purposes of Form PF; how to calculate “regulatory AUM” for purposes of Form PF; aggregating conventions with respect to managed accounts and assets of private funds advised by related persons; issues raised by leverage, funds of funds, non-U.S. advisers and sub-advised hedge funds; removal of the certification requirement from Form PF and the ability to rely on internal methodologies; how final Form PF handles disclosure of value at risk measurements and other risk metrics; and four concerns regarding confidentiality of data in Form PF. This article is the second in a three-part series on Form PF. The first article in this series included a line by line comparison of proposed Form PF and final Form PF. See “Key Legal and Operational Considerations in Connection with Preparing, Filing and Updating Form PF (Part One of Three),” The Hedge Fund Law Report, Vol. 4, No. 39 (Nov. 3, 2011). The third article in this series will summarize the key points made during the operational panel at the seminar. Taken together, the three parts of this series are intended to help HFLR subscribers determine whether they have to file Form PF, what they have to file, how they can go about filing and how their obligations have changed from the proposed rule to the final rule.
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From Vol. 4 No.39 (Nov. 3, 2011)
Key Legal and Operational Considerations in Connection with Preparing, Filing and Updating Form PF (Part One of Three)
Rightly or wrongly, a consensus has emerged among global regulators that private funds – most notably, hedge funds and private equity funds – may collectively pose a risk to the global financial system. The often cited evidence of this view includes the 1998 collapse of Long Term Capital Management and the 2008 financial crisis. Neither, of course, conclusively demonstrates that private funds pose systemic risk, and we at The Hedge Fund Law Report have not seen persuasive evidence of the thesis. In fact, we have seen persuasive evidence to the contrary, namely, that the collective buying power of private funds mitigates systemic risk by providing, if you will, a “buyer of penultimate resort.” (The taxpayer remains the buyer of last resort.) When the going gets tough, it is hedge and private equity funds that typically buy the distressed assets, receive novations of derivatives and provide rescue funding to institutions teetering on the brink. See “Treatment of a Hedge Fund’s Claims Against and Other Exposures To a Covered Financial Company Under the Orderly Liquidation Authority Created by the Dodd-Frank Act,” The Hedge Fund Law Report, Vol. 4, No. 15 (May 6, 2011). But perception, demagoguery and skewed incentives often affect the shape of legislation and regulation more powerfully than evidence or economic reality. The perception of risk in the private funds industry has given us the reality of Form PF. Form PF generally calls for voluminous disclosure by private fund managers to regulators of fund, investor, counterparty, credit and other information. It calls for a level of disclosure that is unprecedented in the U.S. hedge fund industry. The form is legally complex and operationally challenging. On the legal side, its novelty means that there is no direct market practice to assess the form’s application or to guide completion. On the operational side, its novelty means that managers and service providers do not have dedicated systems in place to create, organize, scrub, update and secure the relevant data. See “Technical and Operational Considerations for Hedge Fund Managers in Connection with Preparing, Filing and Updating Form PF,” The Hedge Fund Law Report, Vol. 4, No. 37 (Oct. 21, 2011). To bring some clarity to the complexity, on October 25, 2011, Advise Technologies and The Hedge Fund Law Report co-sponsored a seminar on Form PF. The seminar consisted of two panels, the first focusing on legal questions raised by the form, and the second focusing on operational considerations in connection with the form. On October 26, 2011 – the day after our seminar – the SEC adopted Rule 204(b)-1 under the Investment Advisers Act of 1940 requiring periodic reporting by private fund managers on Form PF. In other words, we discussed proposed Form PF at the seminar and a day later the SEC adopted final Form PF. However, as detailed in this article, most of the changes from the proposed form to the final form involved thresholds and timing provisions. While the seminar covered thresholds and timing provisions, the more important discussion at the seminar focused on market color, relevant practice, context and lore. The final rule did not change any of that; and that is precisely the information that you as a hedge fund manager, investor or service provider need to grapple successfully with Form PF. Moreover, the final rule says nothing about operations – what you actually have to do to prepare, file and update the form – and that was an important focus of the seminar. In recognition of the ongoing relevance of the discussion at the seminar, The Hedge Fund Law Report is publishing a three-part series on changes to Form PF and the key legal and operational points made by seminar participants. This article – the first part of the three-part series – provides a line-by-line comparison of proposed Form PF and final Form PF, including the instructions and the form itself. To do so, this article links to a redline prepared by Advise Technologies highlighting the differences between the proposed and final instructions and forms. The second article in this series will summarize the key legal points made at the seminar, and the third article in this series will summarize the key operational points made at the seminar. Taken together, the three parts of this series are intended to help HFLR subscribers determine whether they have to file Form PF, what they have to file, how they can go about filing and how their obligations have changed from the proposed rule to the final rule.
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From Vol. 4 No.37 (Oct. 21, 2011)
Technical and Operational Considerations for Hedge Fund Managers in Connection with Preparing, Filing and Updating Form PF
The Financial Stability Oversight Council (FSOC) recently approved a proposed rule and guidance setting out the metrics and process it would use to designate a nonbank financial company as systemically important under the Dodd-Frank Act. In that proposed rule, the FSOC noted that “[w]ith respect to hedge funds and private equity firms . . . less [systemic risk related] data is generally available about these companies than about certain other types of nonbank financial companies.” Accordingly, “[b]eginning in 2012, advisers to hedge funds and private equity firms and commodity pool operators and commodity trading advisors will be required to file Form PF with the Securities and Exchange Commission or the Commodity Futures Trading Commission, as applicable, on which form such companies will make certain financial disclosures. Using these and other data, the [FSOC] will consider whether to establish an additional set of metrics or thresholds tailored to evaluate hedge funds and private equity firms and their advisers.” In its proposed form, Form PF calls for voluminous and detailed disclosure of financial, risk, counterparty and other information by hedge fund managers. Understanding the scope of required information presents complicated legal challenges, and complying with the anticipated disclosure obligations presents unique operational challenges. Accordingly, on October 25, 2011 – Tuesday of next week – Advise Technologies and The Hedge Fund Law Report will be co-sponsoring a seminar on legal and operational considerations for hedge fund managers in connection with completing, filing and updating Form PF. The seminar will take place from 8:00 a.m. to 10:00 a.m. at the Helmsley Hotel at 212 East 42nd Street in Manhattan. To register, click here or call 212-576-1170. In anticipation of the seminar, The Hedge Fund Law Report interviewed Stephen Casner, CEO of HazelTree Fund Services, on how hedge fund managers can negotiate some of the more complex operational challenges presented by Form PF. The full text of our interview is included in this issue of The Hedge Fund Law Report.
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