UK: CFTC And SEC Propose Private Fund Systemic Risk Reporting Rules

Last Updated: 9 March 2011
Article by George J. Mazin, Robert H. Ledig and Jonathan Ohring

The Commodity Futures Trading Commission and Securities and Exchange Commission on January 26, 2011, jointly proposed new rules (collectively "Proposed Rules") under the Commodity Exchange Act ("CEA") and the Investment Advisers Act of 1940 ("Advisers Act") to implement provisions of Title IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") that require systemic risk reporting by registered investment advisers, commodity pool operators ("CPOs") and commodity trading advisors ("CTAs").1 The Proposed Rules would require registered investment advisers to private funds, as well as CPOs and CTAs dually registered with the SEC and CFTC, to electronically file a new reporting form ("Form PF") with the SEC for use by the Financial Stability Oversight Council ("FSOC") in monitoring systemic risk to the U.S. financial system.2 Form PF would require reporting of a wealth of information previously undisclosed to regulators relating to private funds, resulting in significantly increased compliance costs for advisers, particularly private fund advisers deemed to be "large" who would have to file Form PF quarterly. Importantly, the information reported on Form PF would not be publicly available.


The Dodd-Frank Act, signed into law by President Obama on July 21, 2010,3 established the FSOC with the mission of monitoring for, and responding to, systemic risks to the financial stability of the United States. The Dodd-Frank Act directs the FSOC to recommend to the Board of Governors of the Federal Reserve System ("Federal Reserve") heightened prudential standards for designated nonbank financial companies, so that the Federal Reserve may supervise such companies that may pose risks to U.S. financial stability in the event of their material financial distress or failure or because of their activities.4 In furtherance of this goal, the Dodd-Frank Act authorizes the SEC to require certain investment advisers to file reports on the "private funds" they advise, and these reports are to be shared with the FSOC to the extent it deems necessary in assessing the systemic risk posed by a private fund.5 The Dodd-Frank Act grants the CFTC and SEC rulemaking authority to fulfill this mandate.6

Who Must File Form PF

Under the Proposed Rules, SEC-registered investment advisers that advise one or more "private funds" would be required to file Form PF.7 The requirement would not extend to "exempt reporting advisers" (i.e., advisers solely to venture capital funds or advisers solely to private funds that in the aggregate have less than $150 million in assets under management ("AUM") in the United States).

In addition, registered investment advisers that are also CPOs or CTAs registered with the CFTC, that advise one or more private funds must report on Form PF information about commodity pools that are "private funds."8 By including this information on Form PF, such CPOs and CTAs would also satisfy a portion of their systemic risk reporting requirements under the CFTC's Parallel Proposed Rules.9

The Proposed Rules would permit, but not require, an adviser to file one consolidated Form PF for itself and its "related persons."10 For any private fund that is a sub-advised fund, only one adviser would report information on Form PF with respect to that fund. If an adviser completes information on Schedule D of Form ADV with respect to any private fund, the same adviser would be responsible for reporting on Form PF with respect to that fund.

Private Fund Advisers

The information proposed to be reported by private fund advisers, CPOs and CTAs (collectively "private fund advisers") on Form PF would vary depending on the size and types of private funds advised. Under the Proposed Rules, every private fund adviser required to file Form PF would be required to complete Section 1, which requests information regarding any hedge funds advised, in addition to information about each private fund's AUM, performance and use of leverage. For some private fund advisers, this is the only section that would need to be completed. However, "large private fund advisers" would be required to complete certain additional sections of Form PF. Under the Proposed Rules, there are three types of large private fund advisers:

  • Advisers managing "hedge funds"11 that collectively have at least $1 billion in assets as of the close of business on any day during the reporting period ("large hedge fund advisers");
  • Advisers managing a "liquidity fund"12 and having combined liquidity fund and registered money market fund assets of at least $1 billion as of the close of business on any day during the reporting period ("large liquidity fund advisers"); and
  • Advisers managing "private equity funds"13 that collectively have at least $1 billion in assets as of the close of business on the last day of the quarterly reporting period for the required report ("large private equity fund advisers").

In order to avoid duplicative reporting, a commodity pool that meets the definition of a "private fund" would be treated as a hedge fund for purposes of Form PF, and CPOs and CTAs filing Form PF would be relieved of certain reporting requirements under the CFTC's Parallel Proposed Rules.14

Calculation of AUM

In determining whether an adviser is a large private fund adviser for purposes of Form PF, the adviser would be required to aggregate:

  • Assets of managed accounts advised by the firm that pursue substantially the same investment objective and strategy and invest in substantially the same positions as the private fund ("parallel managed accounts"); and
  • Assets of that type of private fund advised by any of the adviser's "related persons" (which is a broad concept).

The $1 billion thresholds would be based on gross assets rather than net assets. Therefore, an adviser with modest assets under management could become a large private fund adviser as a result of leverage. In addition, unlike Form ADV, Form PF would require advisers to include assets of parallel managed accounts that are not "securities portfolios" within the meaning of the instructions to Form ADV. For many private fund advisers, this means that the AUM reported on Form PF would differ from the adviser's "Regulatory AUM" that would be reported on Form ADV, as it has been proposed to be amended.15 Accordingly, advisers reporting under $1 billion in Regulatory AUM on Form ADV could cross the $1 billion threshold for purposes of Form PF and be subject to more extensive and frequent reporting.

In calculating AUM, advisers would exclude assets in any account that are exclusively invested in other funds, such as a fund of funds.16 In addition, if the adviser's principal office and place of business is outside the United States, the adviser could exclude any private fund that during the last fiscal year was neither a U.S. person nor offered to, or beneficially owned by, any U.S. person.

Conversely, a foreign adviser would be required to report in respect of any private fund that has at least one U.S. investor, regardless of the amount of the investment. In light of the broad definition of "private fund" and the difficulty to ensure that U.S. investors do not invest in foreign funds, foreign advisers may have to report with respect to many investment funds.

Information Required on Form PF

Section 1

All private fund advisers who must file Form PF would be required to complete Section 1. This Section asks for identifying information regarding the adviser and its related persons, aggregate information about the private funds managed by the adviser, including total and net assets, and the amount of those assets that are attributable to certain types of private funds. Private fund advisers must also enter into Section 1 information about each private fund they advise, including ownership, borrowing and performance data, as well as the aggregate notional value of its derivative positions. However, an adviser to private funds in a master-feeder arrangement would only have to report this information on an aggregate basis rather than reporting it for each feeder fund. Finally, Section 1 requests information with respect to any hedge funds advised by the private fund adviser, including:

  • Investment strategies;
  • Percentage of the fund's assets managed using computer-driven trading algorithms;
  • Significant trading counterparty exposures;
  • Identity of such counterparties, and
  • Trading and clearing practices.

Section 2

Large hedge fund advisers and large commodity pool advisers would be required to complete Section 2, which requests a sweeping range of information. Due to the breadth, depth and frequency of the reporting required (see below), large hedge fund and commodity pool advisers will need to make data compilation and reporting with respect to Form PF an ongoing part of their operations. Section 2 requires such advisers to provide aggregate information about the exposure, through short and long positions, of the hedge funds and commodity pools17 they advise for each month of the reporting period (i.e., 3 months), including the duration of any fixed income portfolio holdings. The information must be broken down by asset class, including:

  • Equity securities;
  • Equity, credit and other derivatives;
  • Commodities;
  • Corporate bonds;
  • Convertible bonds; �� Sovereign and municipal bonds;
  • Loans; and
  • Asset-backed securities and other structured products.

Form PF also seeks a geographic breakdown of the fund's investments.

In addition, Section 2 requires information about each "qualifying hedge fund" advised. A qualifying hedge fund is one with a NAV (individually or in combination with certain "parallel funds" or "accounts") of at least $500 million as of the close of business on any day during the reporting period. In determining whether a private fund is a qualifying hedge fund, an adviser must aggregate any parallel managed accounts, parallel funds, and funds that are part of the same masterfeeder structure, and would have to regard any private funds managed by its related persons as if they were managed by the adviser filing Form PF.

An adviser would have to provide the same exposure data for each qualifying hedge fund as that reported in the aggregate for all hedge funds it advises. In addition, for each qualifying hedge fund, the adviser must report information regarding:

  • Portfolio liquidity;
  • Concentration of positions;
  • Collateral practices with significant counterparties;
  • Clearing relationships with the three central clearing counterparties to which the fund has the greatest net counterparty credit exposure;
  • Risk metrics;
  • Secured and unsecured borrowing and derivatives exposures;
  • Value of the collateral and letters of credit supporting the secured borrowing and derivatives exposures;
  • Types of creditors; and
  • Investor composition and liquidity, including the fund's use of side pockets and gating arrangements

Section 3

Large liquidity fund advisers would be required to complete Section 3. For each liquidity fund managed, advisers must report:

  • Basic fund asset data for each month of the reporting period;
  • The amount of assets invested in different types of instruments, broken down by the maturity of those instruments;
  • Information for each open position of the fund that represents five percent or more of the fund's NAV;
  • Information with respect to any secured and unsecured borrowing by the fund; and
  • Information regarding the concentration of the fund's investor base, gating policies and investor liquidity.

Section 4

Large private equity fund advisers would be required to complete Section 4. For each private equity fund advised, Section 4 requires reporting with respect to:

  • The outstanding balance of the fund's borrowings and guarantees;
  • Data on the debt of controlled portfolio companies in which the fund invests; and
  • Information on bridge financing.

Section 4 requests more specific information for any financial industry portfolio company that the private equity fund invests in. Finally, Section 4 seeks a breakdown of the fund's investments by industry and geography.

These proposed reporting requirements likely will require the use of new automated systems that could be costly to implement and monitor.

Temporary Hardship Exemption

Form PF would make available a temporary hardship exemption for private fund advisers who are unable to file Form PF in a timely manner due to unanticipated financial difficulties. Private fund advisers may request a temporary hardship exemption by checking a box in Section 1 of Form PF and then completing Section 5.

Frequency of Reporting

All private fund advisers other than large private fund advisers would be required to file Form PF annually. For such smaller advisers, annual updates would be due by the last day on which the adviser may timely file its annual updating amendment to Form ADV (i.e., 90 days after the end of the adviser's fiscal year).

Under the Proposed Rules, large private fund advisers must file Form PF quarterly. Form PF would be due no later than 15 days after the end of each calendar quarter, which could be difficult to do based on current fund calendars. Large private fund advisers who are transitioning to become smaller private fund advisers must submit Form PF to report this change no later than the last day on which the adviser's next Form PF filing would be timely (i.e., 15 days after the calendar quarter-end). Similarly, private fund advisers who no longer meet the reporting requirements of Form PF must notify the SEC by filing Form PF no later than the last day on which the adviser's next Form PF filing would be timely. For all newly registering advisers, an initial Form PF filing would be submitted within 15 days of the end of the next occurring calendar quarter after registering with the SEC.

The SEC anticipates a compliance date of December 15, 2011, meaning that large private fund advisers would be required to make their initial Form PF filing by January 15, 2012, and smaller private fund advisers with a fiscal year ending December 31, 2011 would be required to file their first Form PF by March 31, 2012.


The CFTC and SEC will share information collected on Form PF with the FSOC to the extent requested by the FSOC in furtherance of the FSOC's assessment of the systemic risk to the U.S. financial system posed by a private fund. The FSOC also may direct the Treasury Department's Office of Financial Research to collect information from a private fund adviser.18 Under amendments to the Advisers Act added by the Dodd- Frank Act, the CFTC, SEC and FSOC may not be compelled to reveal any information provided on Form PF except under very limited circumstances.19 The CFTC and SEC, however, may use Form PF information in an enforcement action.

Each Form PF will be signed on behalf of the adviser and its related persons "under penalty of perjury."


The requirements of proposed Form PF would impose significant new burdens on private fund advisers, particularly large private fund advisers who would face additional financial and time constraints. With an anticipated compliance date of December 15, 2011, private fund advisers may soon need to begin preparing their compliance personnel to develop the necessary systems to collect and report required information on Form PF.

The CFTC and SEC have requested comment on a broad range of issues relating to Form PF, and affected advisers may wish to consider submitting a comment letter. Advisers might pay particular attention to the requests for comment regarding: the appropriateness of the $1 billion AUM thresholds and their manner of calculation; the definition of a "qualifying hedge fund"; whether certain information requested by Form PF is relevant in assessing a private fund's systemic risk to the U.S. financial system; whether the frequency of reporting required by Form PF is necessary in assessing the systemic risk posed by a private fund; why certain information should not have to be reported; whether the compliance date provides enough time for advisers to prepare their compliance personnel with respect to development of systems to collect and report required information; and the meaning of signing the Form "under penalty of perjury." Foreign advisers may also want to consider and comment upon the international coordination aspects of the proposal." Comments are due by April 12, 2011.


1 Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF, SEC Release No. IA-3145 (Jan. 25, 2011) (joint proposed rules) (hereinafter "Proposing Release"), available at

2 The CFTC has also issued notice of parallel proposed rules creating new forms (Form CPOPQR for CPOs and Form CTA-PR for CTAs) requiring similar disclosures for CPOs and CTAs that are solely registered with the CFTC. See Commodity Pool Operators and Commodity Trading Advisors: Amendments to Compliance Obligations, 76 FR 7976 (Feb. 11, 2011) (hereinafter "Parallel Proposed Rules"), available at public/@newsroom/documents/file/ federalregister012611b.pdf.

3 Pub. L. No. 111-203, 124 Stat. 1376 (2010).

4 Section 112 of the Dodd-Frank Act.

5 Section 404 of the Dodd-Frank Act.

6 Section 406 of the Dodd-Frank Act.

7 Proposed Advisers Act rule 204(b)-1. Under the Advisers Act, as amended by the Dodd-Frank Act, a "private fund" is an issuer that is exempted from the definition of "investment company" under the Investment Company Act of 1940 ("1940 Act") by Section 3(c)(1) or 3(c)(7) of the 1940 Act. Section 202(a)(29) of the Advisers Act. These exemptions are broad, and cover many U.S. or foreign investment funds sold to U.S. persons.

8 Proposed CEA rule 4.27(d).

9 Such CPOs and CTAs will be deemed to have satisfied their filing requirements for Schedules B and C of proposed Form CPO-PQR and Schedule B of proposed Form CTA-PR, respectively.

10 "Related persons" are defined generally as: (1) all of the adviser's officers, partners, or directors (or any persons performing similar functions); (2) all persons directly or indirectly controlling, controlled by, or under common control with the adviser; and (3) all of the adviser's employees (other than employees performing only clerical, administrative, support or similar functions).

11 Form PF would define a "hedge fund" as any private fund that: (1) has a performance fee or allocation calculated by taking into account unrealized gains; (2) may borrow an amount in excess of one-half of its net asset value ("NAV") (including any committed capital) or may have gross notional exposure in excess of twice its NAV (including any committed capital); or (3) may sell securities or other assets short. This is the same definition that the SEC has proposed in its amendments to Form ADV. The Proposing Release provides that a fund should not net long and short positions in calculating its borrowings but should include any borrowings or notional exposure of another person, that are guaranteed by the fund or that the fund may otherwise be obligated to satisfy. This is a broad definition that covers many more investment funds than those commonly referred to as "hedge funds."

12 Form PF would define a "liquidity fund" as any private fund that seeks to generate income by investing in a portfolio of short term obligations in order to maintain a stable NAV per unit or minimize principal volatility for investors. 13 Form PF would define a "private equity fund" as any private fund that is not a hedge fund, liquidity fund, real estate fund, securitized asset fund or venture capital fund and does not provide investors with redemption rights in the ordinary course. A "real estate fund" would be defined as any private fund that is not a hedge fund, that does not provide investors with redemption rights in the ordinary course and that invests primarily in real estate and real estate-related assets. A "securitized asset fund" would be defined as any private fund that is not a hedge fund and that issues asset-backed securities and whose investors are primarily debt holders. A "venture capital fund" would have the same definition as in proposed rule 203(l)-1 under the Advisers Act.

14 Thus, CPOs and CTAs that meet the $1 billion AUM threshold ("large commodity pool advisers") would have the same reporting requirements as large hedge fund advisers.

15 Under the proposed amendments to Form ADV, "regulatory assets under management" would include only securities portfolios for which an adviser provides continuous and regular supervisory or management services, as of the date of filing the Form ADV. An account would be a "securities portfolio" if at least 50% of the total value of the account consisted of securities.

16 However, advisers should note that, for purposes of Form PF, a private fund is considered a "fund of funds" only if it invests solely in other private funds.

17 Hereinafter, collectively "hedge funds."

18 Sections 112 and 153 of the Dodd-Frank Act.

19 The CFTC, SEC and FSOC may reveal information collected on Form PF only to Congress upon agreement of confidentiality, to another federal department or agency or self-regulatory organization upon proper request, or pursuant to a court order.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.