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,” 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 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),” 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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