The staff of the U.S. Securities and Exchange (SEC) recently
posted responses to frequently asked questions (FAQs)
regarding the implementation of Rule 204(b)-1 (Rule) and new Form
PF (Form) under the Investment Advisers Act of 1940, as amended
(Advisers Act). The Form must be completed by SEC registered
investment advisers that manage $150 million or more in regulatory
assets under management attributable to private funds. The FAQs
cover issues relating to the categorization of hedge funds,
liquidity funds and private equity funds under the Rule, as well as
aggregation of assets principles and fund of funds reporting
issues.
Hedge Funds
An adviser should not categorize a private fund as a commodity
pool for reporting purposes if the private fund's commodity
interest positions satisfy either of the de minimis tests
in Regulation 4.13(a)(3)(ii) issued by the Commodity Futures
Trading Commission. "Hedge fund" is defined to include
any commodity pool, so this relief means that private funds falling
within the de minimis exemption will not automatically be
considered hedge funds for reporting purposes. The categorization
of a private fund as a hedge fund may change from reporting period
to reporting period. With respect to any fiscal quarter, a private
fund should be categorized as a hedge fund if it met the definition
of a hedge fund as of the last day of any month in the fiscal
quarter immediately preceding an adviser's most recently
completed fiscal quarter. The FAQs provide an example of the timing
of such categorization.
Liquidity Funds
The categorization of a liquidity fund and a hedge fund are not mutually exclusive and, therefore, a private fund meeting both definitions would be required to be treated as both for reporting purposes. The FAQs clarify how an adviser to such a private fund should report on Form PF.
Private Equity Funds
A private fund that is authorized by its fund documents to
either employ large amounts of leverage or sell assets short should
be categorized as a hedge fund despite the fact that such fund does
not currently, and does not intend to, employ leverage or sell
assets short.
Aggregation of Assets
The FAQs seek to clarify how to properly aggregate assets for
reporting threshold purposes, as required by Instruction 5 of the
Form. The FAQs include examples of how to apply these aggregation
principles.
Fund of Funds
The FAQs provide relief permitting an adviser to a fund that
invests in other funds managed by the adviser to treat the
investing fund as a "fund of funds" for purposes of
Instruction 7 of the Form. Under Instruction 7, a manager must
complete Section 1.b with respect to a fund of funds but is
permitted to disregard the fund of funds for all other reporting
purposes under the Form. Previously, fund of funds reporting was
available only when the underlying funds were managed by other
investment advisers.
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.
