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,” 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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