The U.S. Securities and Exchange Commission ("SEC") on 26 October 2011 adopted Form PF, the form to be used by SEC-registered invest-ment advisers to provide the new Financial Stability Oversight Council, the systemic risk oversight body created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, with information necessary to help it monitor the systemic risk created by private funds, among other things.

Just days later, on 11 November 2011, the European Securities and Markets Authority ("ESMA") published its final report containing ESMA's technical advice to the European Commission (the "ESMA Advice") on possible implementing measures of the Alternative Investment Fund Managers Directive (the "Directive"). This final report contains a pro-forma "template" for reporting by alternative investment fund managers ("AIFMs") to competent authorities in compliance with Article 24 of the Directive in respect of the alternative investment funds ("AIFs") that they manage (referred to in this article as the "ESMA Form").

Both the SEC and ESMA, in accordance with their respective mandates, have taken into account the systemic risk reporting initiatives of various regulators around the world, including each other's initiatives. Both the SEC and ESMA mention the desirability of globally harmonised reporting requirements. However, despite (or perhaps because of) the common goal of harmonisation, and having advance knowledge of the requirements the other was considering, the SEC and ESMA have developed tantalisingly similar yet frustratingly different reporting forms and filing require-ments.

Who Has to File and Which Funds have to be Reported On?

Form PF

Form PF must be filed by an investment adviser1 that:

  • is registered with the SEC as an investment adviser (each a "Registered Adviser");
  • advises one or more "private funds" (as defined in the box below); and
  • has "regulatory assets under manage-ment" (as defined in the box in "What Information Needs to be Reported?" below) attributable to private funds of at least $150 million (about €111 million at current exchange rates).

Accordingly, investment advisers relying on the "foreign private adviser" exemption, the "private fund adviser" exemption (the exemption most likely to be used by non-US investment advisers to private funds) or the "venture capital fund adviser" exemption (each an "Exempt Adviser"), as well as Registered Advisers who do not manage any private funds and Registered Advisers with less than $150 million of regulatory assets under management attributable to private funds, do not have to file Form PF.

The Form PF will have to cover all private funds advised by the Registered Adviser, subject to some limited exceptions. Registered Advisers based outside the United States will be permitted to omit any private funds that: (i) are not US-domiciled entities; (ii) were not beneficially owned by one or more US persons; and (iii) were not offered in the United States during the preceding 12 months.

Private Funds vs. AIFs

Both private funds and AIFs are collective investment vehicles that raise capital from multiple investors with a view to investing it in accordance with a defined investment policy for the benefit of the investors. Both definitions also carve out certain publicly offered funds under their own legal regimes.

Specifically, a "private fund" is any issuer relying on the exception from the definition of "investment company" under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act of 1940, as amended (the "Investment Company Act"). This will include most types of funds offered on a private placement basis in the United States and excludes SEC-registered investment companies such as mutual funds and exchange traded funds ("ETFs"). Because they are not permitted to be SEC-registered investment companies, non-US funds (including UCITS, discussed below) offered in the United States will be considered "private funds" regardless of fact that they may be publicly offered elsewhere.

The definition of "AIF" specifically excludes open-ended funds available to the public and organised as Undertakings for Collective Investment in Transferable Securities ("UCITS"). However, in addition to privately offered AIFs, the definition of AIF includes non-UCITS publicly offered funds such as UK investment trusts and investment companies admitted to trading on regulated markets.

Thus, funds that are not private funds in the United States (e.g., mutual funds and ETFs) can be AIFs in the European Union (the "EU") and funds that are not AIFs in the EU (e.g., UCITS) can be private funds in the United States.


The ESMA Form is intended to be the means by which AIFMs will report and provide the information required pursuant to Article 24 of the Directive in respect of each AIF which they manage.

The extent of the required reporting/information provision and its frequency varies depending on a number of factors including, inter alia, an AIFM's overall AIF assets under management, whether such assets under management include assets acquired by way of leverage and whether or not the relevant managed AIF invests in non-listed companies and issuers in order to acquire control (see further "What Information Needs to be Reported?" below).

An AIFM is a legal person whose regular business is "managing" one or more AIFs. In this context, "managing" consists of performing at least one of either portfolio management or risk management (although an AIFM may perform other functions in the course of the "collective management" of an AIF, e.g., administration and marketing).

For the purposes of the Directive, each AIF, regardless of (i) whether it is domiciled inside or outside the EU, and (ii) whether it receives services from an EU or non-EU investment adviser, will have a single AIFM. In certain circumstances, an AIF may qualify to be self-managed, making the AIF itself the AIFM.

The obligation to report/provide information under the ESMA Form pursuant to Article 24 will apply to:

  • EU investment advisers in respect of all EU AIFs as to which they are treated as the AIFM;
  • EU investment advisers in respect of all non-EU AIFs as to which they are treated as the AIFM, regardless of whether those AIFs are marketed in the EU;
  • non-EU investment advisers in respect of all EU AIFs as to which they are treated as the AIFM; and
  • non-EU investment advisers in respect of all non-EU AIFs as to which they are treated as the AIFM which are marketed in the EU.

One of the key challenges for EU and non-EU invest-ment management groups alike will be to determine, in relation to each AIF, whether the AIF can be considered to be self-managed and, if not, which entity in the management delegation chain is the AIFM and, where the AIFM and the AIF are both outside the EU, whether a prima facie reporting obligation arises under Article 24 and the ESMA Form.

Future DechertOnPoints will explore in more detail the options for identifying the AIFM. Challenges

For investment management groups with potential reporting exposures under Form PF and/or the ESMA Form, there are some obvious reporting challenges.

An EU-based Registered Adviser may have to report to the SEC on Form PF with respect to funds for which it is not obligated to file an ESMA Form. For example, a Registered Adviser to a UCITS, which is outside the scope of the Directive, will still have to be reported on Form PF if it is privately placed in the United States. Another example is where an Exempt Adviser serves as the AIFM for an AIF being offered in the United States and that Exempt Adviser appoints a Registered Adviser to provide portfolio management services. In such a case, the Registered Adviser would have to report on Form PF regarding the fund, even though the Regis-tered Adviser is not the AIFM and so would not be responsible for filing the ESMA Form for that fund.

Some administrators providing administration services to UCITS, and entities providing outsourced middle/back office functions to investment advisers of UCITS, may not be attuned to supporting Registered Advisers' reporting obligations in respect of Form PF, or have processes to assist with these filings, since (i) the requirements attach solely because the investment adviser is registered with the SEC, and (ii) the UCITS will not be required to make the similar filings with ESMA under the Directive on the ESMA Form. Registered Advisers in this position will need to organise/outsource the effective collation of the necessary data in a format and at the times required for them to be able to make the applicable filings.

Where the Registered Adviser is either a sub-adviser or an investment adviser appointed by another entity acting as the fund's AIFM, the Registered Adviser may be a step further removed from the contractual process with the administrator. Such a Registered Adviser may need to make special efforts to assure the provision of the necessary information in order to make the Form PF filing.

An EU-based Registered Adviser to an SEC-registered investment company, such as a mutual fund or ETF (whether or not such fund is marketed in the EU), will have an obligation to file an ESMA Form covering such fund if there is no other AIFM appointed and regardless of where (and whether) the fund is marketed in the EU, even though there is no similar obligation to make a filing on Form PF with respect to such fund.

Similarly (and subject to implementation of the third-country provisions of the Directive), where an SEC-registered investment company being marketed in the EU has appointed a Registered Adviser based in the United States, and regardless of whether a Registered Adviser based in the EU has been appointed as a sub-adviser, the US-based Registered Adviser may be regarded as the AIFM and will be required to file the ESMA Form. In these situations, the US-based Registered Advisers (or other appointed AIFMs) will face the same types of challenges with US administrators to registered funds in respect of the ESMA Form that EU-based Registered Advisers that advise UCITS may have with the UCITS administrators regarding Form PF.

What Information Needs to be Reported?

Form PF

The SEC has split the private fund universe into several categories, which determine the type, amount and frequency of the information to be reported on Form PF.

Registered Advisers with aggregate regulatory assets under management attributable to private funds of at least $150 million are required to complete Sections 1a and 1b of Form PF in respect of the private funds they advise, regardless of the category of private fund.

Section 1a requires the following general information about the Registered Adviser:

  • the name of the Registered Adviser and the names of its related persons; and
  • the amount of regulatory assets under manage-ment and net assets under management attribut-able to different types of private funds.

Section 1b requires the following information about each of the private funds advised:

  • name of the fund and its private fund identifica-tion number;
  • the fund's gross asset value and net asset value;
  • the value of the fund's investments in other funds;
  • the value of the fund's borrowings, broken down by type of creditor;

Section 4 of Form PF requires information with respect to each private equity fund advised, including:

  • borrowings, guarantees, leverage of portfolio companies, debt-to-equity ratio, identity of institutions providing financing, investments by industry and geography; and
  • if the private equity fund invests in any financial industry portfolio company, information including the name of the company, debt-to-equity ratio and percentage of the company held by the fund.

Other Funds:

The adopting release for Form PF also provides definitions for "real estate funds", "securitized asset funds" and "venture capital funds", but only the information in Sections 1a and 1b of Form PF is required to be filed with respect to such funds.

Most data on the Form PF will be required to be presented as of the last day of the Registered Adviser's fiscal year or fiscal quarter, as applicable, rather than as of the relevant funds' fiscal year-ends or fiscal quarter-ends.

For purposes of Form PF, "regulatory assets under manage-ment" attributable to a private fund are calculated gross of outstanding indebtedness and other accrued but unpaid liabilities and including uncalled capital commitments. In determining a fund's gross assets, a Registered Adviser may use the total assets from the fund's balance sheet (i.e., off balance sheet leverage need not be included).

For the purpose of calculating the value of assets under management for the ESMA Form, each financial derivative instrument position, including derivatives embedded in transferable securities, should be converted into its equivalent position in the underlying assets of that derivative using the conversion methodologies set out in the ESMA Advice, which differ from the way the SEC expects the value of derivatives to be calculated for purposes of Form PF. The absolute value of this equivalent position should then be used for the calculation of the total assets under management. However, foreign exchange and interest rate hedging positions that, according to the investment strategy of the AIF, are not used to generate a return should not be taken into account for the calculation of the total value of assets under management. The total should also include assets acquired through leverage. Uncalled capital commitments are not automatically included.

The forms also differ in the treatment of funds of funds, and funds that invest in other funds but which are not funds of funds.


AIFMs managing portfolios of AIFs whose total AIF assets under management are under certain specified thresholds, i.e.:

  • do not exceed €100 million (including assets acquired by way of leverage); or
  • do not exceed €500 million (where the AIF portfo-lios are unleveraged and have no redemption rights within five years),

will be required to report to the competent authority of the AIFM's home Member State the information required in Sections 1 and 2 of the ESMA Form (Questions 1-11) with respect to each EU AIF they manage and with respect to each AIF they market in the EU. AIFMs falling below the reporting thresholds are not required to complete the entire ESMA Form; however, they are permitted to omit certain detailed breakdowns by asset type otherwise required in Questions 4 and 5. See the comparison table below.

AIFMs managing portfolios of AIFs whose assets under management exceed the above thresholds will be required to report to the competent authority of the AIFM's home Member State the information required in Sections 1, 2 and 3 of the ESMA Form with respect to each EU AIF they manage and with respect to each AIF they market in the EU.

The ESMA Form is broken down into three sections based on the type of information required.

Section 1 of the ESMA Form requires information about the main instruments traded and individual exposures, including information about investment strategy, geographical focus, individual exposures and portfolio turnover.

Section 2 of the ESMA Form requires information regarding principal markets in which AIFM trading represents a significant proportion of daily market volume, investor concentration, portfolio concentration and controlling influence exercised by the AIF.

Section 3 of the ESMA Form asks for data regarding market risk, counterparty risk, liquidity risk, borrowing risk, exposure risk, operational risk and other risks.

As these Sections align most closely with Sections 1b, 1c, 2a and 2b of the Form PF, a more specific compari-son has been provided below.

It should be noted that Article 24 also contains provi-sions whereby AIFMs managing one or more AIFs which they have assessed to be employing leverage on a substantial basis (in accordance with the advice set out in Box 111 (Use of Leverage on a Substantial Basis) of the ESMA Advice, are required to make available to relevant competent authorities additional information pursuant to Article 24(4), in relation to: (i) the overall leverage employed by each AIF managed; (ii) a break-down between leverage arising from the borrowing of cash and leverage embedded in financial derivatives; and (iii) the extent to which the AIF's assets have been re-used under leveraging arrangements. The ESMA Advice provides that such AIFM must provide this information at the same time as providing information of the kind covered in Section 3 of the ESMA Form. A future DechertOnPoint will comment on the reporting of leverage.

The ability of the competent authorities to require additional reporting under the Directive should also be noted. Under Article 24(5), competent authorities may require information in addition to that described in Article 24, on a periodic as well as ad hoc basis, where necessary for the effective monitoring of systemic risk.

Not All Funds Are Created Equal but Maybe They Should Be Treated That Way

Although ESMA does require that the type of AIF be identified as a (i) hedge fund, (ii) private equity fund, (iii) real estate fund, (iv) fund of funds, or (v) other fund, ESMA does not generally distinguish between these types of funds for purposes of the type or scope of information to be reported, relying instead on the size (and, to an extent, the leverage) of the portfolios managed by the AIFM as the differentiating factor.

In contrast, the SEC has chosen to require different types and different amounts of information based on the types of fund involved and the level of regulatory assets under management attributable to each type of fund.


Some Registered Advisers that will not be required to file Form PF because their regulatory assets under management attributable to private funds are less than the $150 million threshold may nevertheless have to file the ESMA Form if they are acting as the AIFM to an AIF and may have to provide the full information about the AIF where the relevant assets under management exceed the relevant thresholds (depending on the prevailing exchange rate).

The ESMA Form will require significantly more data for all types of funds (other than hedge funds) than the Form PF. However, with respect to liquidity funds and private equity funds reported on the ESMA Form, the Form PF information will be a burden that is different in form and nature.

Since information on Form PF is to be reported in dollars and information on the ESMA Form is to be reported in euro, in each case regardless of the currency of denomination of the relevant fund, and because the thresholds for the reporting levels are stated in dollars and euro, fluctuations in exchange rates will need to be taken into account and monitored closely, especially if a reporting threshold is being approached.

Because the basis on which the relevant assets under management and asset values are to be calculated differs between the forms, a fund that is reported on both Form PF and the ESMA Form for the same period may show differing information for questions based on these calculations, even if the questions are otherwise identical.

Comparison of Sections 1b, 1c, 2a and 2b of Form PF against the ESMA Form

The chart below compares the hedge fund sections of Form PF against the ESMA Form, as the hedge fund sections for Form PF are the most closely analogous to the ESMA Form in its current state. For each item, the section of the form and the question number are noted for ease of reference.

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