By Jennifer Dickinson, Senior Managing Director, U.S.
On February 8, 2024, the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) jointly adopted amendments to Form PF that will significantly expand the reporting requirements of private funds, particularly certain “large hedge funds” ($500m in net asset value). The Release and Fact Sheet are available here and the compliance date is one year after publication in the Federal Register (early 2025).
All Private Fund advisers
The amendments include both changes in how firms have historically reported fund information and new questions, which are summarized below:
Reporting Master-Feeder, Parallel Fund, and Fund-of-Fund Structures:
- Separate reporting for each component fund in a master-feeder arrangement or parallel fund structure
- Added several questions to Section 1b of Form PF regarding:
- Whether the reporting fund is the master fund in a master-feeder arrangement, the reporting fund’s type (i.e., qualifying hedge fund, commodity pool, etc.)
- Whether the reporting fund is a component of a parallel fund structure, and the types of funds that invest in the reporting fund without being feeder funds (i.e., fund-of-funds)
- Value of a reporting fund’s investments in equity of third-party private funds, the details of affiliated private funds in which the reporting fund invests, and the identifying details (i.e., the master fund’s legal entity identifier) of master funds for reporting feeder funds
Withdrawals and redemptions:
- Under the current Form PF, only large hedge fund advisers are required to disclose information regarding withdrawal and redemption rights provided in the ordinary course of business
- The Amendments have moved the former Question 49(a), discussing withdrawal and redemption rights, to Section 1b, thus requiring input from all private fund advisers
- In addition, the Amendments added threshold questions asking:
- Whether the reporting fund is a closed- or open-ended private fund
- For quarterly filers, the amount of withdrawals and redemptions for each month of the relevant report period
- Information regarding the frequency of redemption dealing days and data regarding what percentage of a reporting fund’s net asset value may be subject to withdrawal or redemption suspensions, restrictions, or other similar material lockups
Unfunded commitments and contributions:
- Several new questions regarding the amount of unfunded commitments and contributions to the reporting fund during the reporting period
- These questions regarding unfunded commitments and contributions have been added to Section 1 of Form PF
Reporting trading vehicles:
- New yes/no questions regarding any trading vehicles and whether they hold assets, incur leverage, or conduct trading
- These trading vehicle questions have been added to Section 1 of Form PF
Transparency update:
- Fund internal rate of return since inception as of the end of each fiscal quarter
- Whether the fund’s internal rate of return includes the effect of any borrowing secured by unfunded commitments, such as lines of credit, value, volatility, negative returns, and drawdowns
- These questions regarding fund holdings and performance have been added to Section 1 of Form PF
Counterparty exposure:
- New questions regarding consolidated counterparty exposure for hedge funds (except for qualifying hedge funds that report on consolidated counterparty exposure in Section 2, as described further below)
- Complete a consolidated counterparty exposure table, which shows the reporting fund’s borrowing and collateral received and lending and posted collateral aggregated across all creditors and counterparties. The new categories on the reporting table include:
- Unsecured borrowing
- Secured borrowing and lending (prime brokerage agreement or other brokerage agreement)
- Secured borrowing and lending via repurchase agreement (repo) and reverse repo (including tri-party repo)
- Other secured borrowing and lending
- Derivative positions cleared by a consolidated counterparty,
- Derivative positions that are not cleared by a consolidated counterparty
- These questions regarding counterparty exposure have been added to Section 1 of Form PF
Hedge funds using digital assets as an investment strategy:
- Certain questions were updated to provide clarity as to whether or not specific asset classes should be classified as a digital or nondigital strategy
- Amendments include digital assets as a reportable investment strategy
- If an asset can be classified as both a nondigital and digital asset, such asset should be reported as a nondigital asset
Large hedge funds
Monthly exposure reporting
- Disclose fund exposure by sub-asset class
- Monthly long and short value of currency exposure from foreign exchange derivatives and fund assets denominated in other than the base currency (i.e., for U.S. managers, non-U.S. dollar assets)
- Industries as to which the fund has long and short exposure and long and short netted exposure
- Increased transparency on the net long and short value of the reporting fund’s currency exposure arising from foreign exchange derivatives and assets and liabilities denominated in a foreign currency
- Whether such currency or industry exposure is equal to, or exceeds, (i) 5% of the reporting fund’s net asset value, or (ii) US$1 billion of such exposure in U.S. dollars
- Regarding long and short netted exposure, report the percentage of net asset value represented by the top five and top 10 (in separate questions) long and short netted exposures
- The Amendments also removed the aggregate reporting requirement, which required large hedge fund advisers to report certain aggregated information about the hedge funds they advise
- These questions requesting further information on large hedge fund adviser exposure have been added to Section 2 of Form PF
Counterparty and creditor disclosures
- Complete a more detailed counterparty and creditor exposure table, showing the reporting fund’s borrowing and collateral received and lending and posted collateral aggregated across all creditors and counterparties
- Disclose:
- Unsecured borrowing.
- Secured borrowing and lending (prime brokerage agreement or other brokerage agreement)
- Secured borrowing and lending via repo and reverse repo (including tri-party repo)
- Other secured borrowing and lending, derivative positions cleared by a consolidated counterparty, and derivative positions that are not cleared by a consolidated counterparty
- More detail on the identity of their largest creditors and counterparties and the volume of their counterparty and creditor interactions
- These questions regarding large hedge fund adviser counterparties and creditors have been added to Section 2 of Form PF
At IQ-EQ, our regulatory compliance team have the experience to handle all U.S. reporting requirements of the SEC and CFTC and will work closely with you to keep your firm compliant in the face of new and evolving rules. Find out more about our U.S. compliance consulting services.
