The SEC’s newly-adopted assets under management (AUM) calculation, known as an investment adviser’s “regulatory assets under management” (Regulatory AUM), will have numerous important regulatory implications for hedge fund managers. Among other things, the calculation will govern whether the manager must or may register
with the SEC as an investment adviser; whether the manager must file Form ADV
; and which parts, if any, of Form PF the manager must complete and file. See “Former SEC Commissioner Paul Atkins Discusses the Big Issues Raised by Form PF: Law, Operations, Confidentiality, Risk Management, Disclosure, Enforcement and Policy
,” Hedge Fund Law Report, Vol. 5, No. 8 (Feb. 23, 2012). Unfortunately for many hedge fund managers, the calculation of a firm’s Regulatory AUM is quite different from the calculation of the firm’s traditional AUM. Also, in certain circumstances, large hedge fund managers may need to calculate their Regulatory AUM for each month. Therefore, hedge fund managers must understand their Regulatory AUM and arrange to have it calculated in a timely fashion to ensure that they will comply with applicable registration and reporting requirements. This article begins by defining Regulatory AUM and discussing how to calculate it. The article then discusses the applicability of a firm’s Regulatory AUM with respect to the hedge fund adviser registration regime; the various exemptions from adviser registration; and the various new reporting obligations imposed on hedge fund advisers, including those relating to Form PF. The article concludes with an analysis of some of the challenges associated with Regulatory AUM and specific guidance on navigating such challenges.