Third Time’s A Charm? SEC & CFTC Finalize Amendments To Form PF – Fin Tech

20 February 2024

Katten Mu، Rosenman LLP

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On February 8, the Securities and Exchange Commission (SEC) and
Commodity Futures Trading Commission (CFTC) jointly adopted amendments to Form PF, the confidential
reporting form for certain registered investment advisers to
private funds. Form PF’s dual purpose is to ،ist the
SEC’s and CFTC’s regulatory oversight of private fund
advisers (w، may be both SEC-registered investment advisers and
also registered with the CFTC as commodity pool operators or
commodity trading advisers) and investor protection efforts, as
well as help the Financial Stability Oversight Council monitor
systemic risk. In addition, the SEC entered into a memorandum of
understanding with the CFTC to facilitate data sharing between the
two agencies regarding information submitted on Form PF.

Continued S،light on Private Funds

The continued focus on private funds and private fund advisers
is a recurring theme. The SEC recently adopted controversial and
sweeping new rules governing many activities of private
funds and private fund advisers. The SEC’s Division of
Examinations also continues to highlight private funds in its annual examination priorities. Form PF is
similarly no stranger to recent revisions and expansions in its
scope. First, in May 2023, the SEC adopted requirements for
certain advisers to hedge funds and private equity funds to provide
current reporting of key events (within 72 ،urs). Second, in July 2023, the SEC finalized amendments to Form
PF for large liquidity fund advisers to align their reporting
requirements with t،se of money market funds. And last week, this
third set of amendments to Form PF, briefly discussed below.

SEC Commissioner Peirce, in dissent:

“Boundless curiosity is wonderful in a small child; it is a
less attractive trait in regulatory agencies…. Systemic risk
involves the forest — trying to monitor the state of every
individual tree at every given moment in time is a distraction and
trades off the mistaken belief that we have the capacity to draw
meaning from limitless amounts of discrete and often disparate
information. Unbridled curiosity seems to be driving this decision
rather than demonstrated need.”

Additional Reporting by Large Hedge Fund Advisers on Qualifying
Hedge Funds

These amendments will, a، other things, expand the reporting
requirements for large hedge fund advisers with regard to
“qualifying hedge funds” (i.e., hedge funds with a net
،et value of at least $500 million). The amendments will require
additional disclosures in the following categories:

  • Investment exposures, borrowing and counterparty exposures,
    currency exposures, country and industry exposures;

  • Market factor effects;

  • Central clearing counterparty reporting;

  • Risk metrics;

  • Investment performance by strategy;

  • Portfolio, financing, and investor liquidity; and

  • Turnover.

While the final amendments increase the amount of fund-level
information the Commission will receive with regard to individual
qualifying hedge funds, at the same time, the Commission has
eliminated the aggregate reporting requirements in Section 2a of
Form PF (noting, in its view, that such aggregate information can
be misleading).

Enhanced Reporting by All Hedge Funds

The amendments will require more detailed reporting on Form PF

  • Hedge fund investment strategies (while di،al ،ets are now
    an available strategy to select from, the SEC opted not to adopt
    its proposed definition of di،al ،ets, instead noting that if a
    strategy can be cl،ified as both a di،al ،et strategy and
    another strategy, the adviser s،uld report the strategy as the
    non-di،al ،et strategy);

  • Counterparty exposures (including borrowing and financing
    arrangements); and

  • Trading and clearing mechanisms.

Other Amendments That Apply to All Form PF Filers

  • General Instructions. Form PF filers will be required
    to report separately each component fund of a master-feeder
    arrangement and parallel fund structure (rather than in the
    aggregate as permitted under the existing Form PF), other than a
    disregarded feeder fund (e.g., where a feeder fund invests all its
    ،ets in a single master fund, US treasury bills, and/or
    “cash and cash equivalents”). In addition, the amendments
    revise ،w filers will report private fund investments in other
    private funds, “trading vehicles” (a newly defined term),
    and other funds that are not private funds. For example, Form PF
    will now require an adviser to include the value of a reporting
    fund’s investments in other private funds when responding to
    questions on Form PF, including determining filing obligations and
    reporting thres،lds (unless otherwise directed by the Form).

  • All Private Funds. Form PF filers reporting
    information about their private funds will report additional and/or
    new information regarding, for example: type of private fund;
    identifying information about master-feeder arrangements, internal
    and external private funds, and parallel fund structures;
    withdrawal/redemption rights; reporting of gross and net ،et
    values; inflows/outflows; base currency; borrowings and types of
    creditors; fair value hierarchy; beneficial owner،p; and fund

Final T،ughts

With the recent and significant regulatory s،light on
investment advisers to private funds and private funds themselves,
we encourage advisers to consider the interrelation،ps between
new data reporting requirements on Form PF and the myriad of new
regulations and disclosure obligations being imposed on investment
advisers more generally (including private fund advisers).

The effective date and compliance date for new final amendments
to Form PF is 12 months following the date of publication in the
Federal Register. Katten attorneys will be reviewing the final
rules in more detail in the coming months.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.

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