• SEC Issues Additional Guidance on Form PF
  • July 4, 2012
  • Law Firm: Proskauer Rose LLP - New York Office
  • On June 8, 2012, the SEC posted several "frequently asked questions" on its Web site providing some interpretive guidance for registered investment advisers who may have reporting obligations under Form PF. See http://www.sec.gov/divisions/investment/pfrd/pfrdfaq.shtml. In general, the FAQs are consistent with the interpretive positions taken by the SEC staff in the adopting release for Form PF, and provide little in the way of additional relief for reporting advisers.

    The FAQs reemphasize that the SEC takes a very broad view of what types of funds fall within the definition of a "hedge fund" for Form PF reporting purposes. For example:

    • The FAQs provide that any private fund whose governing documents would permit the fund to "either employ large amounts of leverage or sell assets short" must be treated as a hedge fund for Form PF reporting purposes, even if the fund does not engage in such activities and has no intention of doing so. Note, however, that according to the Adopting Release for Form PF, the failure of a fund’s governing documents to specifically prohibit leverage or short selling activities does not automatically mean that the fund must be treated as a hedge fund under Form PF, so long as the fund does not actually engage in such activities, and a reasonable investor would understand that, based on the fund’s offering documents, the fund will not engage in such activities.
    • The FAQs also provide that if a fund that previously has been reporting under Form PF as a non-hedge fund acquires one of the defining characteristics of a hedge fund (e.g., by amending the fund's governing documents to permit the fund to engage in short sales), it must begin reporting under Form PF as a hedge fund.
    • A fund that meets the defining characteristics of both a liquidity fund and a hedge fund must report as both a hedge fund and a liquidity fund. In other words, the definitions of a hedge fund and a liquidity fund are not mutually exclusive.

    The FAQs provide that, even though commodity pools must generally be treated as hedge funds for Form PF reporting purposes, a fund whose commodity interest positions satisfy the de minimis tests in CFTC Rule 4.13(a)(3)(ii) need not report as a hedge fund, so long as the fund does not otherwise fit within any of the other defining characteristics of a hedge fund.

    Other FAQs provide additional guidance on how assets under management should be aggregated, and on how fund-of-fund assets should be treated, for Form PF reporting purposes.