The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

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By Topic: Form PF

  • From Vol. 8 No.43 (Nov. 5, 2015)

    SEC Release of Private Fund Statistics Illuminates Key Trends in Hedge Fund Industry

    The Risk and Examinations Office of the SEC Division of Investment Management recently released a compilation of Private Fund Statistics (Report) that provides data from filers of Form PF and Form ADV in 2013 and 2014.  In a recent speech, SEC Chair Mary Jo White said of the Report, “The public availability of aggregated information should help to address persistent questions, and to some degree misconceptions, about the practices and size of the private fund industry.”  Accordingly, the data in the Report helps identify trends within the hedge fund industry, allowing hedge fund advisers to benchmark themselves against their peers and competitors, as well as providing investors with information to refine their due diligence processes.  This article examines the Report, focusing particularly on data relevant to hedge funds and hedge fund advisers, including leverage and liquidity practices.  The SEC also issues an annual report on how it uses such data.  See “Report Describes the SEC’s Use of Form PF for Hedge Fund Manager Examination Targeting and Risk Management,” The Hedge Fund Law Report, Vol. 7, No. 38 (Oct. 10, 2014); and “SEC’s First Report on Initial Form PF Filings Offers Insight into How the Agency Is Using the Collected Data for Examinations, Enforcement and Systemic Risk Monitoring,” The Hedge Fund Law Report, Vol. 6, No. 34 (Aug. 29, 2013).

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  • From Vol. 8 No.42 (Oct. 29, 2015)

    SEC Chair Highlights Two Types of Risks Hedge Fund Managers Must Consider

    The SEC regards required registration and reporting under the Dodd-Frank Act as critical for increasing transparency and protecting investors in hedge funds and other private funds.  However, as SEC Chair Mary Jo White recently noted at the Managed Funds Association Outlook 2015 Conference held in New York, the SEC is entering “a new phase of oversight.”  In her remarks, White discussed what the SEC has learned – and will continue to focus on – regarding the risk profiles of private funds.  White also enumerated risks and challenges for private funds and their advisers that can have a systemic impact, as well as firm-specific risks that hedge fund managers and other advisers should actively consider in their businesses.  This article summarizes White’s remarks.  For additional insight from White, see “SEC Chair White Describes the SEC’s Game Plan with Respect to the Asset Management Industry,” The Hedge Fund Law Report, Vol. 7, No. 47 (Dec. 18, 2014); “Seven Cybersecurity Risks That SEC Examiners Will Look For in Examinations of Hedge Fund Managers,” The Hedge Fund Law Report, Vol. 7, No. 17 (May 2, 2014); and “Top SEC Officials Discuss Hedge Fund Compliance, Examination and Enforcement Priorities at 2014 Compliance Outreach Program National Seminar (Part One of Three),” The Hedge Fund Law Report, Vol. 7, No. 7 (Feb. 21, 2014).

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  • From Vol. 8 No.2 (Jan. 15, 2015)

    HFLR-Advise Technologies Panel Explores AIFMD Marketing and Annex IV Reporting Requirements

    On December 2, 2014, The Hedge Fund Law Report and Advise Technologies sponsored a panel discussion that provided practical guidance on the Annex IV reporting regime under the AIFMD, discussed how that regime overlaps with the U.S. Form PF reporting regime, and considered how and whether “soft marketing” and “reverse solicitation” may be used in the E.U. by managers who wish to avoid or postpone the reporting requirements imposed on managers who market funds in the E.U. under national private placement regimes.  The program, entitled “An in depth discussion on AIFMD reporting requirements and lessons learned from those who have already filed,” featured Jeanette Turner, Managing Director and General Counsel for Advise Technologies, LLC; Simon Whiteside, a partner at Simmons and Simmons LLP; Richard Webley, Head of Business Advisory Services for Americas, Citi Investor Sales and Relationship Management; and John Sampson, an Executive Director at Ernst & Young LLP.  This article summarizes the key insights from that presentation.  For an overview of Annex IV reporting issues, see “Key Pain Points in AIFMD Annex IV Reporting and Proven Strategies for Surmounting Them,” The Hedge Fund Law Report, Vol. 7, No. 44 (Nov. 20, 2014).  See also “Answers to Questions Most Frequently Asked by U.S. and Other Non-E.U. Managers on the Impact and Implementation of the AIFMD,” The Hedge Fund Law Report, Vol. 8, No. 1 (Jan. 8, 2015).

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  • From Vol. 8 No.1 (Jan. 8, 2015)

    Answers to Questions Most Frequently Asked by U.S. and Other Non-E.U. Managers on the Impact and Implementation of the AIFMD

    The Alternative Investment Fund Managers Directive (AIFMD) continues to dominate discussions on global hedge fund regulation, marketing, remuneration, risk, reporting and related topics.  In this guest article, two of the leading global authorities on the AIFMD – Samuel K. Won, Founder and Managing Director of Global Risk Management Advisors, and Simon Whiteside, a Partner in the London office of Simmons & Simmons LLP – provide comprehensive answers to 14 of the questions most frequently asked by U.S. and other non-E.U. managers on the impact and implementation of the AIFMD.  Specifically, Won and Whiteside discuss the viability of reverse enquiry; the interaction between capital introduction and reverse enquiry; reliance on national private placement regimes; remuneration, side letter and leverage disclosure; AIFMD versus Form PF; content and frequency of AIFMD reporting; Annex IV reporting on master funds; and AIFMD-relevant risk management and reporting considerations.  See also “A Practical Comparison of Reporting Under AIFMD versus Form PF,” The Hedge Fund Law Report, Vol. 7, No. 41 (Oct. 30, 2014).

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  • From Vol. 7 No.44 (Nov. 20, 2014)

    Key Pain Points in AIFMD Annex IV Reporting and Proven Strategies for Surmounting Them

    Like Form PF, the consolidated AIFMD reporting template – commonly referred to as “Annex IV” – requires hedge fund managers to make consistent and persuasive sense out of voluminous and disparate data.  Best practices for Annex IV reporting are emerging; managers’ experience with Form PF provides an analogous but incomplete precedent.  In an effort to identify the chief challenges for hedge fund managers presented by Annex IV, and workable strategies for negotiating those challenges, The Hedge Fund Law Report recently interviewed Jeanette Turner, Managing Director and General Counsel at Advise Technologies, LLC.  Our interview covered, among other topics, the top three pain points felt by hedge fund managers in preparing Annex IV; the different experiences of European Economic Area (EEA) and non-EEA managers; how firms are handling the one-month deadline; the extent to which Form PF guidance is applicable to Annex IV; whether information reported in Annex IV will be made public; how regulators will use that information; key upcoming deadlines; differences in Annex IV reporting for hedge and private equity fund managers; the viability of reverse solicitation; and the continuing (but potentially sunsetting) applicability of national private placement regimes.  This interview was conducted in connection with an AIFMD panel discussion to be held on December 2, 2014 at the Harvard Club of New York City, from 8:30 a.m. to 10:30 a.m.  Turner will participate in that discussion, and she will be joined by John Sampson, Executive Director at Ernst & Young; Richard Webley, Head of Business Advisory Services for Americas, Citi Investor Sales and Relationship Management; and Simon Whiteside, Partner in the London office of Simmons and Simmons.  To attend, please contact RSVP@AdviseTechnologies.com or visit rsvp.AdviseTechnologies.com.  For additional insight from: Turner, see “A Practical Comparison of Reporting Under AIFMD versus Form PF,” The Hedge Fund Law Report, Vol. 7, No. 41 (Oct. 30, 2014); Sampson, see “Eight Key Elements of an Integrated, Efficient and Accurate Hedge Fund Reporting Solution,” The Hedge Fund Law Report, Vol. 7, No. 43 (Nov. 13, 2014); Webley, see “Lessons Learned by Hedge Fund Managers from the August 2012 Initial Form PF Filing,” The Hedge Fund Law Report, Vol. 5, No. 43 (Nov. 15, 2012); and Whiteside, see “U.K. FCA Guidance Confirms Simplified Transparency Reporting for Certain Private Placements of Master-Feeder Funds,” below, in this issue of The Hedge Fund Law Report.

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  • From Vol. 7 No.43 (Nov. 13, 2014)

    Eight Key Elements of an Integrated, Efficient and Accurate Hedge Fund Reporting Solution

    Alternative asset managers are faced with an unprecedented demand for reporting.  Prior to 2012, investment managers issued as few as six reports per year.  However, given new legislation and regulations as a result of the financial crisis, managers now potentially face filing more than 60 reports per year, including investor reports and due diligence reports, Forms PF, CPO-PQR, AIFMD, TIC-S, SLT, TIC-B, SEC 13F, Solvency II and Basel III, plus CFTC and EMIR derivative reporting, among others.  In addition to the number of reports that need to be filed, all of them need to be completed quickly.  What is worse is that they are not spaced out evenly over the year and tend to come due at the same time.  Consequently, firms need to devote extra resources during peak reporting times, only to then redeploy them during lulls.  This makes efficiency difficult to achieve.  Only a systematic, thoughtful and holistic approach can bring efficiencies to these demanding reporting requirements.  In a guest article, John Sampson, an executive director in the Financial Services Office of Ernst & Young LLP, describes an eight step framework for an integrated, effective and repeatable hedge fund reporting solution.

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  • From Vol. 7 No.41 (Oct. 30, 2014)

    A Practical Comparison of Reporting Under AIFMD versus Form PF

    Europe’s Alternative Investment Fund Managers Directive (AIFMD) is in full effect and the consolidated AIFMD reporting template – commonly referred to as Annex IV – is now final.  Although some fund managers have already filed Annex IV, the vast majority will do so in January 2015, for the reporting period ending on December 31, 2014.  A prior article in the HFLR described efforts to harmonize Annex IV and Form PF.  See “A Practical Guide to AIFMD Reporting for Non-E.U. Fund Managers: Reporting Under AIFMD versus Form PF,” The Hedge Fund Law Report, Vol. 6, No. 20 (May 16, 2013).  This article updates the discussion in that prior article, providing a useful side-by-side comparison of reporting under the two forms.  Firms should take note that even where this comparison highlights similarities between the two forms, there are still certain nuances that could trip up filers (and this article provides examples of such nuances).  The authors of this article are Jeanette Turner, Managing Director & General Counsel at Advise Technologies, LLC; David Vaughan, a partner in Dechert LLP’s Washington, D.C. office; Chris Gardner, a partner in Dechert LLP’s London office; and Rachel Fenwick, an associate in Dechert LLP’s London office.

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  • From Vol. 7 No.38 (Oct. 10, 2014)

    Report Describes the SEC’s Use of Form PF for Hedge Fund Manager Examination Targeting and Risk Management

    In its second annual staff report (Report) on how the SEC is using information collected in Form PF filings, the staff of the SEC’s Division of Investment Management provided background on the aims of its efforts (includes an Appendix charting updated “census” data reflecting filers as of May 7, 2014), and detailed how the agency is using the information collected on Form PF – for examinations, investigations, risk monitoring, guidance and consultation.  For a summary of the SEC’s first PF filing report, see “SEC’s First Report on Initial Form PF Filings Offers Insight into How the Agency Is Using the Collected Data for Examinations, Enforcement and Systemic Risk Monitoring,” The Hedge Fund Law Report, Vol. 6, No. 34 (Aug. 29, 2013).  See also “A Practical Guide to AIFMD Reporting for Non-U.S. Fund Managers: Reporting Under AIFMD versus Form PF,” The Hedge Fund Law Report, Vol. 6, No. 20 (May 16, 2013).

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  • From Vol. 7 No.35 (Sep. 18, 2014)

    SEC Investment Management Division Director Norm Champ Pinpoints the Key Compliance Challenges in Hedge Fund and Alternative Mutual Fund Management

    On September 11, 2014, SEC Division of Investment Management Director Norm Champ delivered remarks at the Practising Law Institute’s 2014 hedge fund management seminar.  Champ covered a wide range of territory, including industry statistics, use of Forms ADV and PF for systemic risk monitoring and enforcement purposes, recent guidance updates and no-action letters relevant to hedge fund managers, evolving examination dynamics, signs of a weak compliance program and industry-specific conflicts of interest.  Champ also highlighted notable conflicts of interest inherent in simultaneously managing alternative mutual funds and hedge funds, expanding on the ideas he introduced in a speech at a PLI private equity event on June 30, 2014.  For more on Champ’s June 30 speech, see “Five Key Compliance Challenges for Alternative Mutual Funds: Valuation, Liquidity, Leverage, Disclosure and Director Oversight,” The Hedge Fund Law Report, Vol. 7, No. 28 (Jul. 24, 2014).

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  • From Vol. 6 No.43 (Nov. 8, 2013)

    KPMG/AIMA/MFA Survey Quantifies the Impact of the AIFMD, FATCA, Form PF and Adviser/CPO Registration on Hedge Fund Manager Compliance Budgets

    KPMG International, in cooperation with the Alternative Investment Management Association and the Managed Funds Association, recently published a report detailing findings from its survey of 200 hedge fund managers around the world who have, in the aggregate, approximately $910 billion in assets under management.  The survey generally covered the impact of recent regulatory changes on managers’ compliance expenditures, operations and product offerings.  Specifically, the survey analyzed how size and geography impact manager compliance costs; key regulatory drivers of recent increases in manager compliance expenditures; manager projections for expenditures on outside service providers; impact of regulatory developments on manager operations (including whether regulatory changes would cause a manager to stop doing business or move from a jurisdiction); and manager predictions about future offerings of registered products such as funds organized pursuant to the EU’s Undertakings for Collective Investment in Transferable Securities (UCITS) Directive, or funds registered pursuant to the U.S. Investment Company Act of 1940 (mutual funds).  See “Are Alternative Investment Strategies Within the Spirit of UCITS?,” The Hedge Fund Law Report, Vol. 5, No. 23 (Jun. 8, 2012); “Citi Prime Finance Report on Liquid Alternatives Describes a Massive Capital Raising Opportunity for Hedge Fund Managers Willing to Go Retail (Part One of Two),” The Hedge Fund Law Report, Vol. 6, No. 21 (May 23, 2013).  This article summarizes key findings of the survey.

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  • From Vol. 6 No.34 (Aug. 29, 2013)

    SEC’s First Report on Initial Form PF Filings Offers Insight into How the Agency Is Using the Collected Data for Examinations, Enforcement and Systemic Risk Monitoring

    The Dodd-Frank Act directed the SEC to collect data with regard to hedge funds, private equity funds and other private funds in order to assist the Financial Stability Oversight Council (FSOC) in evaluating and monitoring systemic risk.  In October 2011, the SEC created Form PF for that purpose.  The first full reporting cycle ended on April 30 of this year.  See “Challenges Faced By, Risks Encountered By and Lessons Learned From First Filers of Form PF,” The Hedge Fund Law Report, Vol. 6, No. 4 (Jan. 24, 2013); and “Lessons Learned by Hedge Fund Managers from the August 2012 Initial Form PF Filing,” The Hedge Fund Law Report, Vol. 5, No. 43 (Nov. 15, 2012).  The Dodd-Frank Act also directed the SEC to report annually to Congress on how the SEC “has used the data collected regarding private funds under the Dodd-Frank Act to protect investors and the integrity of the markets.”  Based on that directive, the SEC’s Division of Investment Management recently issued its first Form PF report.  The report provides an overview of the Form PF reporting regime; general data relating to initial filers; and, perhaps most interestingly, a discussion of how the SEC is using and proposes to use the data gathered, beyond providing it to the FSOC.  This article summarizes the key takeaways from the Report.

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  • From Vol. 6 No.20 (May 16, 2013)

    A Practical Guide to AIFMD Reporting for Non-U.S. Fund Managers: Reporting Under AIFMD versus Form PF

    With the arrival of May, all U.S. fund managers who are required to file Form PF will have filed at least once, and some will have filed Form CPO-PQR as well.  Both forms will have assumed their positions as fixtures on the regulatory landscape.  There is scant time for rest, however, as the Alternative Investment Fund Managers Directive (AIFMD) in Europe looms on the horizon – even for U.S. managers.  The AIFMD is Europe’s response to the financial crisis of 2008 and is analogous to Title IV of the Dodd-Frank Act in the U.S.  The AIFMD is more broad-ranging in scope, but this article focuses only on one key aspect: the imposition of standardized reporting requirements for Alternative Investment Fund Managers.  Owing to the fact that Forms PF and CPO-PQR were developed in consultation with European and other global regulatory authorities, there are many similarities across the forms.  However, there are also significant differences.  U.S. fund managers required to report under the AIFMD will not be able to simply recycle information reported on Form PF or Form CPO-PQR for AIFMD reporting purposes.  Instead, they must reevaluate, recalculate and repackage key data points for European reporting.  In a guest article, Doug Schwenk, S. Chris Church and David Vaughan help private fund managers understand the various reporting demands imposed by the AIFMD and compare such reporting requirements with those applicable to Form PF.  Schwenk is a former hedge fund COO and currently the CEO of Advise Technologies; Church is part of the implementation team at Advise; and Vaughan is a partner at Dechert LLP.  For background on the AIFMD, see “Former OCIE Chief Lori Richards and other PwC Partners and Managers Discuss the Mechanics of the AIFMD and Its Impact on Marketing by U.S. Hedge Fund Managers,” The Hedge Fund Law Report, Vol. 6, No. 10 (Mar. 7, 2013); and “Marketing Hedge Funds to European Union Investors in the Post-AIFMD Era,” The Hedge Fund Law Report, Vol. 5, No. 5 (Feb. 2, 2012).

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  • From Vol. 6 No.12 (Mar. 21, 2013)

    SEC Provides Guidance in Frequently Asked Questions on Form PF Concerning Reporting of Related Persons; Disregarded Entities; Derivatives Positions and Volumes; Master-Feeder Structures; and Calculation of Gross Asset Value and Regulatory Assets Under Management

    As filers continue to confront challenges in providing accurate and complete reporting on Form PF, the SEC has at various times during the past year provided answers to its Form PF Frequently Asked Questions (FAQs).  The most recent of these updates were provided on March 8, 2013 and November 20, 2012, and addressed issues such as how to report various related persons; report certain disregarded investments; calculate derivatives position exposures and trading volumes; report private funds that are part of a master-feeder structure; and calculate the gross asset value and regulatory assets under management of a reporting fund.  This article summarizes highlights from these most recent updates to the SEC’s Form PF FAQs.  For coverage of previous updates to the FAQs, see “SEC Staff Publishes Answers to Frequently Asked Questions Concerning Form PF,” The Hedge Fund Law Report, Vol. 5, No. 26 (Jun. 28, 2012).

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  • From Vol. 6 No.9 (Feb. 28, 2013)

    RCA Symposium Identifies Best Practices for Hedge Fund Managers on Topics Including Insider Trading, Compliance Reviews, SEC Examinations, Fund Governance, Form PF and Marketing and Advertising (Part Two of Two)

    On December 18, 2012, the Regulatory Compliance Association held its Compliance, Risk & Enforcement Symposium at the Pierre Hotel in New York City.  Participants at the event included leading hedge fund industry professionals, and panels focused on topics including insider trading, compliance programs and reviews, SEC examination priorities, hedge fund governance, Form PF and marketing and advertising issues.  This article – the second installment in a two-part series covering the Symposium – discusses SEC examination priorities (and practical guidance for addressing areas of concern); recent trends in hedge fund governance; lessons learned from initial Form PF filings and strategies for completing Form PF; and marketing and advertising issues, including a discussion of the JOBS Act and related topics.  The first installment covered, among other things: insider trading (including a discussion of manager cooperation, the elements of insider trading, the continuing viability of the mosaic theory, insider trading investigative techniques and the use of expert networks and paid consultants); and compliance programs and reviews (including a discussion of the approach to and framework for hedge fund compliance programs and reviews, and specific policies and procedures designed to address trading risks).  See “RCA Symposium Identifies Best Practices for Hedge Fund Managers on Topics Including Insider Trading, Compliance Reviews, SEC Examinations, Fund Governance, Form PF and Marketing and Advertising (Part One of Two),” The Hedge Fund Law Report, Vol. 6, No. 8 (Feb. 21, 2013).

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  • From Vol. 6 No.4 (Jan. 24, 2013)

    K&L Gates Investment Management Seminar Provides Guidance for Hedge Fund Managers on Social Media, Pay to Play Rules, ERISA Rule Changes, AIFMD, SEC Examination and Enforcement Priorities, Form PF, the JOBS Act, CPO Regulation and FATCA

    On December 5, 2012, international law firm K&L Gates held its 2012 Investment Management Conference in New York.  Speakers at the conference provided guidance on various regulatory developments impacting hedge funds, including: the use of social media; pay to play rules; rule changes under the Employee Retirement Income Security Act of 1974 (ERISA) impacting managers of plan assets; the E.U. Alternative Investment Fund Managers Directive (AIFMD); SEC examination and enforcement priorities; Form PF; the JOBS Act; regulation of commodity pool operators (CPOs); and the Foreign Account Tax Compliance Act (FATCA).  This article highlights the key points discussed at the conference on each of the foregoing topics.

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  • From Vol. 6 No.4 (Jan. 24, 2013)

    Challenges Faced By, Risks Encountered By and Lessons Learned From First Filers of Form PF

    With the initial Form PF filings behind us, now is an opportune time to take stock of what lessons hedge fund advisers have learned from their experience with Form PF to date.  In a guest article, Tim Wilson (co-head of the risk practice of Global Risk Management Advisors) and Jonathan Miller (a partner in the New York office of Sidley Austin LLP) address, based on their work and discussions with first filers and other advisers, the following questions that advisers have asked them about Form PF: (1) What were the major challenges that large hedge fund advisers faced in completing their August and November 2012 filings?  (2) What are the principal risks to which hedge fund advisers are exposed as a result of their filings?  (3) What lessons should hedge fund advisers draw from the experience of first filers?  Addressing these questions can assist all Form PF filers in avoiding critical mistakes in preparing for, completing and making future Form PF filings.  The responses to these questions can be instrumental not only to those hedge fund advisers that have yet to make their initial Form PF filings, but also to those hedge fund advisers that will be making subsequent filings.  See also “Lessons Learned by Hedge Fund Managers from the August 2012 Initial Form PF Filing,” The Hedge Fund Law Report, Vol. 5, No. 43 (Nov. 15, 2012).

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  • From Vol. 5 No.47 (Dec. 13, 2012)

    When and How Can Hedge Fund Managers Permissibly Disguise the Identities of Their Hedge Funds in Form ADV and Form PF?

    Historically, hedge fund managers generally have not been required to disclose information about their funds to regulators or the public.  Hedge funds were excluded from the definition of “investment company” in the Investment Company Act of 1940 and therefore did not have to file registration statements, as mutual funds do.  Many hedge fund managers were not required to register as investment advisers and therefore did not have to file Form ADV, which contains fund information.  And the U.S. had no analogue to the U.K. FSA’s periodic reports on systemic risk posed by hedge funds.  Hedge funds are still excluded from the investment company definition, but many managers now must register and file Form ADV.  See “How Can Hedge Fund Managers Rebut the Presumption of Materiality of Certain Disciplinary Events in Form ADV, Part 2?,” The Hedge Fund Law Report, Vol. 5, No. 1 (Jan. 5, 2012).  And, as the industry well knows, the U.S. has implemented its own version of systemic risk reporting by private fund managers via Form PF.  See “Assumptions to Consider in Completing Form PF Effectively: Experiences from First Filers,” The Hedge Fund Law Report, Vol. 5, No. 39 (Oct. 11, 2012).  Form ADV requires hedge fund managers to disclose significant fund information to regulators and the public, and Form PF requires managers to disclose voluminous and detailed fund information to regulators.  However, the instructions to both forms now allow a manager to preserve the anonymity of its private funds by using a code or designation to identify the funds referenced in those forms.  Some well-known hedge fund managers reportedly have taken advantage of this new opportunity, and there is speculation that more managers will do so.  Nonetheless, the relief provided in the instructions is conditioned on satisfaction of delineated obligations.  This article provides an overview of key considerations for fund managers that wish to mask the identities of their private funds in Form PF and Form ADV filings.  Specifically, this article outlines some of the reasons why hedge fund managers may wish to shield the identities of their private funds in Form ADV and Form PF; the circumstances under which hedge fund managers can mask the identity of their private funds; how fund managers can go about disguising the identities of their private funds; whether such masking will raise suspicion from regulators and investors; and best practices for managers that wish to implement a masking strategy.

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  • From Vol. 5 No.43 (Nov. 15, 2012)

    Lessons Learned by Hedge Fund Managers from the August 2012 Initial Form PF Filing

    Form PF has presented, and continues to present, daunting challenges for hedge fund managers required to file the form.  Very large hedge fund advisers – those with $5 billion in regulatory assets under management – were required to file their initial Forms PF by August 29, 2012.  The initial filing highlighted some best practices as well as some pitfalls associated with the Form PF process.  On October 11, 2012, at the Princeton Club in Manhattan, Global Risk Management Advisors, Inc., Citi Prime Finance, Imagine Software, Sidley Austin LLP and The Hedge Fund Law Report hosted a seminar entitled, “Lessons Learned and Not Learned From the August 2012 Initial Form PF Filing.”  The seminar participants all had direct experience with the initial round of Form PF filings, and the seminar offered an occasion to reflect on that experience and extract lessons from it.  In particular, participants at the seminar discussed specific lessons learned from the initial filing process; some common mistakes made by first filers; how to craft assumptions used in Form PF; the treatment of derivative positions in Form PF; how regulators will use the information in Form PF in connection with enforcement actions against hedge fund managers; how to handle investor requests for Form PF or the data in it; allocation of costs of preparing Form PF; and other challenges presented by the form.  This article summarizes the key takeaways from the seminar.

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  • From Vol. 5 No.42 (Nov. 9, 2012)

    Annual Thompson Hine Hedge Fund Seminar Focuses on Implications for Hedge Fund Managers of the JOBS Act, Form PF and Form CPO-PQR

    On October 4, 2012, Thompson Hine LLP hosted its annual Hedge Fund Seminar, which this year was entitled, “The JOBS Act and Dodd-Frank – Two Years Later.”  Speakers at the event addressed the impact of Form PF and Form CPO-PQR as well as the anticipated impact of the Jumpstart Our Business Startups (JOBS) Act on hedge fund managers.  In addition, the speakers discussed the building blocks of a culture of compliance at hedge fund management companies.  This article summarizes the most salient points raised at the seminar.

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  • From Vol. 5 No.41 (Oct. 25, 2012)

    CFTC Interpretive Guidance Takes the View That Certain Securitization Vehicles Are Not Commodity Pools, Even Though They Use Swaps

    Prior to the Dodd-Frank Act, few considered securitization vehicles commodity pools.  But after the Dodd-Frank Act – and, in particular, after passage of various CFTC rules governing swaps trading – a question has arisen in the structured finance world as to whether certain securitization vehicles that use swaps are commodity pools.  The answer matters because if such securitization vehicles are commodity pools, the vehicles would be subject to CFTC regulation and their operators would be subject to CFTC registration (unless an exemption is available).  In turn, CFTC regulation is complicated and CFTC registration can be onerous.  See, e.g., “So You Don’t Want to Take the Series 3 Exam?  Alternatives to the General Proficiency Requirement for Associated Persons of Commodity Pool Operators and Commodity Trading Advisors,” The Hedge Fund Law Report, Vol. 5, No. 37 (Sep. 27, 2012).  Accordingly, the American Securitization Forum (ASF) and The Securities Industry and Financial Markets Association (SIFMA and, together with ASF, Applicants) recently requested guidance from the CFTC’s Division of Swap Dealers and Intermediary Oversight concerning these issues.  This article summarizes the interpretive guidance provided by the CFTC in response to the Applicants’ request.  Also, this article includes insight from Sidley Austin partner Jonathan Miller on the guidance and its implications for the registration and filing obligations (including potential Form PF filing obligations) of operators of securitization vehicles.

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  • From Vol. 5 No.39 (Oct. 11, 2012)

    Sixth Annual Hedge Fund General Counsel Summit Highlights SEC Enforcement Priorities, Side Letters, Investment Allocations, Expense Allocations, Trade Errors, Record Retention, Fund Marketing, Secondaries, JOBS Act and STOCK Act (Part One of Two)

    On September 18 and 19, 2012, ALM Events hosted its Sixth Annual Hedge Fund General Counsel Summit (GC Hedge Summit) at the University Club in New York City.  Panelists, including regulators, in-house practitioners and law firm professionals, discussed topics of significant relevance for hedge fund general counsels, including: SEC enforcement priorities relating to hedge funds; the nuts and bolts of a successful hedge fund compliance program (including a discussion of side letters, investment allocations, expense allocations, trade errors and record retention); marketing of hedge funds (including a discussion of compensation of marketing professionals and the Jumpstart Our Business Startups (JOBS) Act); secondary market transactions in fund shares; and the Stop Trading on Congressional Knowledge Act of 2012 (STOCK Act) and its implications for the gathering of political intelligence.  Our coverage of the GC Hedge Summit is provided in two installments.  This first installment covers the session addressing the nuts and bolts of a successful compliance program and the session addressing marketing of hedge funds and secondary market transactions in hedge fund shares.  The second article will cover the session discussing the SEC’s enforcement priorities and the session discussing the implications of the STOCK Act for the gathering of political intelligence by hedge fund managers.  See also “Political Intelligence Firms and the STOCK Act: How Hedge Fund Managers Can Avoid Potential Pitfalls,” The Hedge Fund Law Report, Vol. 5, No. 14 (Apr. 5, 2012).

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  • From Vol. 5 No.39 (Oct. 11, 2012)

    Assumptions to Consider in Completing Form PF Effectively: Experiences from First Filers

    The summer of 2012 proved to be a challenging one for many private fund professionals involved in the preparation of the first wave of Form PF filings.  In particular, Large Hedge Fund Advisers were required to make their first Form PF filing by August 29, 2012.  What emerged from the frenzied summer and the post-filing chatter is a common theme that can be gleaned by the title of this article.  Your assumptions will play an important role in how you complete Form PF and whether you do so effectively.  There are many assumptions that can be safely made and many that conclusively cannot be made.  In a guest article, Kelli Brown and Peter J. Chess provide guidance for both the experienced and inexperienced future Form PF filers.  Brown is a principal and co-founder of Sol Hedge, LLC, a hedge fund consulting firm, and Chess is an associate in the Corporate and Securities practice group at Pillsbury Winthrop Shaw Pittman LLP.  For more guidance on successful preparation and completion of Form PF, see “Ten Steps to a Successful Form PF,” The Hedge Fund Law Report, Vol. 5, No. 17 (Apr. 26, 2012).

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  • From Vol. 5 No.38 (Oct. 4, 2012)

    Operational, Investor and Regulatory Risk in Connection with Form PF: An Interview with Samuel K. Won of Global Risk Management Advisors

    The Hedge Fund Law Report recently had the privilege of discussing Form PF with Samuel K. Won, the Founder & Managing Director of Global Risk Management Advisors, Inc. (GRMA), a preeminent adviser to alternative investment managers and investors on risk management.  GRMA has advised major hedge fund managers, institutional investors and regulators on preparation, filing and use of Form PF.  In particular, the firm helped shepherd various “first filer” managers – generally, those with more than $5 billion in regulatory assets under management – though the Form PF process, and in doing so observed what first filers did right, and what they did wrong.  That firsthand experience has direct bearing on how second and third filers should approach the Form PF process, and how first filers should revise their approaches for the second and subsequent filings.  In this interview, Won shared with The Hedge Fund Law Report some of the lessons learned (and not learned) from the August 2012 initial filing.  In particular, Won addressed: the three major operational risks that first filer managers struggled with; the chief categories of risk associated with Form PF; how first filers can improve their infrastructure, processes and controls; what second and third filers should be doing to prepare for their initial Form PF filings; how regulators are likely to use the data obtained from Form PF; how institutional investors plan to use Form PF; allocation of expenses of Form PF preparation; who at a hedge fund manager should be the “point person” for the Form PF process; and more.  We conducted this interview with Won in connection with two upcoming events at which Won will participate, along with other panelists from Citi Prime Finance, Sidley Austin LLP and Imagine Software.  Those events are entitled “Form PF: Lessons Learned and Not Learned from the August 2012 Initial Filing,” and will expand on the topics discussed in this interview.  The first of these two events will take place on Thursday, October 11 at the Princeton Club in Manhattan from 4:00 p.m. to 7:30 p.m.  The second of the two events (covering substantially similar substance) will take place on Thursday, October 18 at l’escale Restaurant at the Delamar Greenwich Harbor Hotel in Greenwich, Connecticut from 4:00 p.m. to 7:30 p.m.  Registration for both events is free.  To register for the New York event, click here.  To register for the Greenwich event, click here.

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  • From Vol. 5 No.33 (Aug. 23, 2012)

    Ten Key Lessons Learned From Test Filings of Form PF

    When Title IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in July 2010, some investment advisers worried about how changes to registration and reporting would impact them.  Chief among their anxieties was Form PF, a new filing requirement imposing substantial reporting requirements upon many investment advisers previously exempt from regulatory scrutiny.  More specifically, Form PF is a private, confidential filing required to be made by certain SEC-registered investment advisers on a quarterly or annual basis.  Designed to assist the Financial Stability Oversight Council in monitoring systemic risk, it requires the reporting of a broad range of data on private funds, including portfolio, performance and risk information.  In a guest article, Robert Diaz, managing director of SS&C GlobeOp, discusses ten broadly applicable lessons learned about Form PF preparation and filing.  These lessons are based on months of preparing and coordinating practice filings with SS&C GlobeOp clients.  This article also includes a chart offering a visual representation of the complexity and time pressure of many of the relevant data classifications in Form PF (e.g., RAUM, derivative exposure, etc.).

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  • From Vol. 5 No.29 (Jul. 26, 2012)

    SEC Staff Provides Additional Guidance on Form PF Regarding Key Definitions, Reporting Obligations, Calculation Methodologies and Transitional Reporting Mechanics

    On June 28, 2012 and July 19, 2012, the staff of the Securities and Exchange Commission (Staff) provided additional guidance on Form PF by updating its frequently asked questions on Form PF (FAQs).  The Staff has offered reporting entities some flexibility in how they respond to certain questions in Form PF, provided that such reporting is consistent with internal reporting and reporting to investors and provided further that reporting methodologies are explained in Question 4 of Form PF.  Among other things, the additional guidance: defines key terms in Form PF; clarifies the reporting obligations for specific questions; provides instructions for performing certain calculations necessary for reporting information on Form PF; and provides guidance on transitional mechanics for preparing and filing Form PF.  See also “How Should Hedge Fund Managers Allocate Form PF Expenses Between Their Hedge Funds and Their Management Entities?,” The Hedge Fund Law Report, Vol. 5, No. 25 (Jun. 21, 2012).

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  • From Vol. 5 No.26 (Jun. 28, 2012)

    SEC Staff Publishes Answers to Frequently Asked Questions Concerning Form PF

    On June 8, 2012, the SEC’s Division of Investment Management (Staff) published answers to seven frequently asked questions about Form PF, covering topics such as the definition of a “commodity pool”; the definition of a “hedge fund”; the reporting treatment of hedge funds; treatment of parallel managed accounts; and the definition and treatment of “disregarded private funds.”  This article highlights the primary practice points from the Staff answers.

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  • From Vol. 5 No.25 (Jun. 21, 2012)

    How Should Hedge Fund Managers Allocate Form PF Expenses Between Their Hedge Funds and Their Management Entities?

    One of the most frequent types of questions posed by hedge fund managers to hedge fund lawyers is: Is this a fund expense or a management company expense?  The question arises so often because of the wide variety of expenses incurred in advising hedge funds and operating management entities, as well as the typically broad drafting of expense allocation provisions in fund governing documents.  Answers to such questions are important for both practical and legal reasons.  Practically, managers do not want to allocate expenses in a way that looks like overreaching, or that departs from market practice.  Legally, a mistaken allocation call may constitute a breach of fiduciary duty.  The stakes of allocation calls have always been high, but they are higher today than they have been heretofore, for two primary reasons.  First, the SEC recently highlighted allocation of expenses as an examination priority.  Second, many managers are facing a big, near-term allocation decision – how to allocate expenses in connection with preparing, completing and filing Form PF.  The Form PF process involves, among other things: gathering of fund information from disparate sources; computing, compiling and scrubbing of relevant data; interpreting ambiguous directives in the form; and completing and filing the form.  It’s a big and potentially expensive process, requiring managers to collect and manage up to 2,000 separate data points.  See “Ten Steps to a Successful Form PF,” The Hedge Fund Law Report, Vol. 5, No. 17 (Apr. 26, 2012).  The SEC has not provided guidance on whether Form PF expenses should be borne by the management company or the funds, and market practice and even applicable principles have been difficult to discern.  This article seeks to bring coherence to the critical but as yet unanswered question of how to allocate expenses in connection with Form PF.  In doing so, this article analyzes: the variety of Form PF expenses that managers can incur; how hedge fund managers generally approach the allocation of expenses between themselves and their funds; how general allocation principles apply specifically to the allocation of Form PF expenses; market practice among hedge fund managers with respect to allocating Form PF expenses; and specific steps managers can take to mitigate the uncertainty concerning Form PF expense allocation determinations.

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  • From Vol. 5 No.22 (May 31, 2012)

    RCA Symposium Focuses on Hedge Fund Governance, Form PF, Enterprise Risk Management, Regulatory Enforcement, Criminal Prosecution, CCO and GC Liability and Third Party Relationships (Part One of Two)

    On April 16, 2012, the Regulatory Compliance Association held its Regulation and Risk Thought Leadership Symposium (RCA Symposium) in New York City at the Pierre Hotel.  The RCA Symposium brought together leading practitioners and regulators in a series of panel discussions, each of which offered unique insight on various topics of relevance for hedge fund managers.  This is the first article in a two-part series summarizing the highlights from the RCA Symposium.  This first article discusses the sessions that covered: fund governance issues; interpreting, preparing for and completing Form PF; and enterprise risk management for hedge fund managers.  The second article will discuss sessions that covered: the new paradigm of regulatory enforcement and white-collar prosecution; chief compliance officer and general counsel liability; and re-evaluation of the operating model for third party relationships.

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  • From Vol. 5 No.17 (Apr. 26, 2012)

    Ten Steps to a Successful Form PF

    The Form PF (PF is short for “private funds”) is a new Securities and Exchange Commission reporting form for investment advisers to private funds that have at least $150 million in private fund assets under management.  Comprising 42 pages and divided into 4 sections with corresponding subsections, Form PF may appear daunting at first.  The task of completing and filing the Form also entails categorizations, specific and nuanced reporting requirements and Form-specific calculations, not to mention the fact that improperly completed Forms may be delayed or even rejected.  However, with the proper tools and plan of attack, an adviser will be able to fulfill its reporting requirements and improve its data platform for a host of other reporting and filing requirements.  Form PF necessitates working with large amounts of data.  So, early planning, coordination and organization are essential for success.  In a guest article, Jay Gould, a Partner at Pillsbury Winthrop Shaw Pittman LLP and leader of Pillsbury’s Investment Funds & Investment Management practice team, and Kelli Brown, Director of Private Funds at Data Agent, LLC, describe ten steps that a hedge fund manager should take for successful Form PF completion and filing.

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  • From Vol. 5 No.15 (Apr. 12, 2012)

    IOSCO Announces Intention to Conduct Annual Surveys of Hedge Fund Managers Based on Updated Systemic Risk Data Categories

    On March 22, 2012, the Technical Committee of the International Organization of Securities Commissions (IOSCO) published an updated list of categories of data to be used in connection with annual surveys of hedge fund managers by IOSCO’s Task Force on Unregulated Financial Entities.  IOSCO conducted its first hedge fund survey in September 2010, soliciting information in categories publicly identified in February 2010.  See “Does the IOSCO Hedge Fund Disclosure Template Foreshadow the Content of Hedge Fund and Hedge Fund Adviser Disclosures to be Required by the SEC?,” The Hedge Fund Law Report, Vol. 3, No. 15 (Apr. 16, 2010).  IOSCO intends to conduct its second hedge fund survey in September 2012, and to conduct such surveys annually thereafter, each September.  The September 2012 hedge fund survey will solicit information from hedge fund managers in at least the updated data categories.  According to a press release, those categories incorporate “lessons learned [since February 2010] and recent legislative developments in the U.S. and Europe.”  The stated purpose of the annual surveys is to “enable the collection of internationally consistent data which can be shared to facilitate international supervisory cooperation.”  This article describes the ten categories of information in which IOSCO will solicit information, discusses the context and limits of the annual surveys and highlights questions raised by IOSCO’s announcement to conduct annual surveys.

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  • From Vol. 5 No.11 (Mar. 16, 2012)

    Ernst & Young’s Arthur Tully Talks in Depth with The Hedge Fund Law Report About Hedge Fund Governance, Succession Planning, Valuation, Form PF and Administrator Shadowing

    Ernst & Young’s (E&Y) recently published “Coming of Age: Global Hedge Fund Survey 2011” (Survey) highlighted a host of operational issues that hedge fund managers have recently grappled with, including issues related to corporate governance, succession planning and shadowing of fund administrators.  See “Ernst & Young Survey Juxtaposes the Views of Hedge Fund Managers and Investors on Hedge Fund Succession Planning, Governance, Administration, Expense Pass-Throughs and Due Diligence,” The Hedge Fund Law Report, Vol. 5, No. 1 (Jan. 5, 2012).  We recently interviewed Arthur Tully, the Co-Leader of E&Y’s Global Hedge Fund practice, on various topics covered by the Survey, including: issues related to valuation of investments; independent reconciliation of investment positions; reconciliation and documentation of differences in NAV calculations; independent administration considerations for UCITS funds; and how to gather the data necessary to complete Form PF.  See “Hedge Fund Valuation Pitfalls and Best Practices: An Interview with Arthur Tully, Co-Leader of Ernst & Young’s Global Hedge Fund Practice,” The Hedge Fund Law Report, Vol. 5, No. 2 (Jan. 12, 2012).  In this follow-up interview, Tully shares his insight and experience on additional topics of pressing importance to hedge fund managers, including best practices for hedge fund corporate governance; compensation structures for effective succession planning; valuation issues (including a discussion of the biggest mistakes made in valuing assets); project management in the Form PF context; and administrator shadowing (including common functions shadowed by hedge fund managers).  This article contains the full text of our second interview with Tully.  Tully is expected to expand on these and related topics during a session focusing on hedge fund governance at the Regulatory Compliance Association’s Spring 2012 Regulation & Risk Thought Leadership Symposium.  That Symposium will be held on April 16, 2012 at the Pierre Hotel in New York.  For more information, click here.  To register, click here.  (Subscribers to The Hedge Fund Law Report are eligible for discounted registration.)

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  • From Vol. 5 No.11 (Mar. 16, 2012)

    U.K.’s FSA Issues Latest Biannual Report Assessing Possible Sources of Systemic Risk from Hedge Funds

    On February 29, 2012, the U.K. Financial Services Authority (FSA) released its latest biannual report entitled “Assessing the possible sources of systemic risk from hedge funds” (Report).  The Report detailed the results of two separate surveys conducted by the FSA in September 2011 and October 2011: the Hedge Fund Survey (HFS) and the Hedge Funds as Counterparties Survey (HFACS).  These surveys were designed to “assess potential systemic risks to financial stability from hedge funds including the nature of bank and prime broker interactions with this segment of the financial system.”  Among other things, the surveys assessed the gross exposures of hedge funds in the markets in which they trade as well as their use of different types of leverage in their trading activities.  Importantly, the FSA is likely to share the results of such surveys with other global regulatory authorities that oversee the activities of hedge fund managers, and such results may ultimately impact the type and amount of disclosures that hedge fund managers are required to make with respect to their hedge funds, including disclosures required by Form PF and pursuant to the EU Alternative Investment Fund Managers Directive.  This article highlights the key findings of the Report.

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  • From Vol. 5 No.9 (Mar. 1, 2012)

    Registration, Reporting, Disclosure and Operational Consequences for Hedge Fund Managers of the SEC’s New “Regulatory Assets Under Management” Calculation

    The SEC’s newly-adopted assets under management (AUM) calculation, known as an investment adviser’s “regulatory assets under management” (Regulatory AUM), will have numerous important regulatory implications for hedge fund managers.  Among other things, the calculation will govern whether the manager must or may register with the SEC as an investment adviser; whether the manager must file Form ADV; and which parts, if any, of Form PF the manager must complete and file.  See “Former SEC Commissioner Paul Atkins Discusses the Big Issues Raised by Form PF: Law, Operations, Confidentiality, Risk Management, Disclosure, Enforcement and Policy,” The Hedge Fund Law Report, Vol. 5, No. 8 (Feb. 23, 2012).  Unfortunately for many hedge fund managers, the calculation of a firm’s Regulatory AUM is quite different from the calculation of the firm’s traditional AUM.  Also, in certain circumstances, large hedge fund managers may need to calculate their Regulatory AUM for each month.  Therefore, hedge fund managers must understand their Regulatory AUM and arrange to have it calculated in a timely fashion to ensure that they will comply with applicable registration and reporting requirements.  This article begins by defining Regulatory AUM and discussing how to calculate it.  The article then discusses the applicability of a firm’s Regulatory AUM with respect to the hedge fund adviser registration regime; the various exemptions from adviser registration; and the various new reporting obligations imposed on hedge fund advisers, including those relating to Form PF.  The article concludes with an analysis of some of the challenges associated with Regulatory AUM and specific guidance on navigating such challenges.

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  • From Vol. 5 No.8 (Feb. 23, 2012)

    Former SEC Commissioner Paul Atkins Discusses the Big Issues Raised by Form PF: Law, Operations, Confidentiality, Risk Management, Disclosure, Enforcement and Policy

    Form PF has created legal and business challenges for hedge fund managers.  On the legal side, managers and their counsel have been scrambling to determine whether they have to file the form, for which entities, when, what data they must include, how frequently they must update the form, and so on.  On the business side, the questions have been even more challenging.  The form requires managers to compile and organize data that is disparate, voluminous and dynamic.  Some of the data is internal to the manager, and some is external, at service providers; much of the data is quantitative, but some is qualitative and discretionary; and substantially all of the data is dynamic – it changes over time, even over the relatively compressed time in which managers have to file their first Forms PF.  Operationally, managers have to coordinate the efforts of service providers that otherwise would operate independently.  Technology will have a large role to play in smart Form PF compliance, but will not substitute for competent human oversight and project management.  In short, Form PF is a challenge.  To help hedge fund managers think through the challenge, we at The Hedge Fund Law Report have published and will continue to publish best-of-breed thinking and analysis on the hardest questions raised by Form PF.  See, e.g., “Form PF: Operational Challenges and Strategic, Regulatory and Investor-Related Implications for Hedge Fund Managers,” The Hedge Fund Law Report, Vol. 5, No. 4 (Jan. 26, 2012).  In a similar vein, a session at the Regulatory Compliance Association’s Spring 2012 Regulation & Risk Thought Leadership Symposium will identify and address critical issues and pitfalls with respect to Form PF.  That Symposium will be held on April 16, 2012 at the Pierre Hotel in New York.  For more information, click here.  To register, click here.  (Subscribers to The Hedge Fund Law Report are eligible for discounted registration.)  One of the anticipated speaking faculty members for the Form PF session at the upcoming RCA Symposium is Paul S. Atkins, CEO of Patomak Global Partners, LLC, and former Commissioner of the U.S. Securities and Exchange Commission.  We recently had the privilege of interviewing Atkins on some of the hardest questions raised by Form PF for hedge fund managers.  Generally, our interview covered topics including interpretation, operations, technology, confidentiality, risk management, disclosure, enforcement and policy.  Atkins was candid, knowledgeable and insightful, and his points are important reading for any hedge fund manager looking to get it right on Form PF.  The full text of our interview is included in this issue of The Hedge Fund Law Report.

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  • From Vol. 5 No.4 (Jan. 26, 2012)

    Form PF: Operational Challenges and Strategic, Regulatory and Investor-Related Implications for Hedge Fund Managers

    In October 2011, the Securities and Exchange Commission and the Commodity Futures Trading Commission adopted the much-anticipated final rule for Form PF, which requires reporting of risk measurement information by registered investment advisers regarding the private funds they manage.  As hoped, the agencies made a number of modifications to the proposed form to ease some of the burdens associated with these new risk-reporting requirements.  Specifically, the agencies established a minimum assets under management threshold for filing Form PF, raised the threshold for detailed hedge fund reporting, extended the length of time hedge fund advisers would have to file and the start date for compliance.  However, the core elements of the new reporting requirements remain largely unchanged, especially since there has been no substantial reduction in the volume of information required.  Therefore, although some improvements to the form have been made, Form PF is still likely to pose significant challenges for many hedge fund managers, especially with regard to implementation.  This guest article discusses some of the major operational challenges that many hedge funds will face in the preparation and implementation required to complete Form PF and provides guidance on some of the larger strategic and investor-related implications stemming from Form PF.  The authors of this article are Samuel K. Won, the Founder and Managing Director of Global Risk Management Advisors, and David Vaughan, a Partner at Dechert LLP.  See “David Vaughan Returns to Dechert from SEC Division of Investment Management,” The Hedge Fund Law Report, Vol. 4, No. 31 (Sep. 8, 2011).  This article begins with a discussion of the Form PF reporting requirements.  The article then explains the operational challenges that many hedge fund managers face in accurately and timely gathering and reporting information required by Form PF.  The article then moves to a discussion of the strategic, regulatory and investor-related implications raised by Form PF.  Finally, the article concludes with a discussion of recommendations designed to address the operational and other challenges hedge fund managers face with respect to Form PF.

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  • From Vol. 4 No.42 (Nov. 23, 2011)

    Speakers at Walkers Fundamentals Hedge Fund Seminar Provide Update on Hedge Fund Terms, Governance Issues and Regulatory Developments Impacting Offshore Hedge Funds

    On November 8, 2011, international law firm Walkers Global (Walkers) held its Walkers Fundamentals Hedge Fund Seminar in New York City.  Speakers at this event addressed various topics of current relevance to the hedge fund industry, including: recent trends in offshore hedge fund structures; hedge fund fees and fee negotiations; fund lock-ups; fund-level and investor-level gates; fund wind-down petitions and the appointment of fund liquidators; corporate governance issues; D&O insurance; fund manager concerns with Form PF; and offshore regulatory developments, such as proposed legislation requiring registration of certain master funds in the Cayman Islands, the EU’s Alternative Investment Fund Manager (AIFM) Directive and the British Virgin Islands (BVI) Securities & Investment Business Act (SIBA).  This article summarizes the key points discussed at the conference relating to each of the foregoing topics and others.

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  • From Vol. 4 No.40 (Nov. 10, 2011)

    Key Legal and Operational Considerations in Connection with Preparing, Filing and Updating Form PF (Part Two of Three)

    Form PF generally calls for voluminous disclosure by private fund managers to regulators of fund, investor, counterparty, credit and other information.  The form is legally complex and operationally challenging.  On the legal side, its novelty means that there is no direct market practice to assess the form’s application or to guide completion.  On the operational side, its novelty means that managers and service providers do not have dedicated systems in place to create, organize, scrub, update and secure the relevant data.  See “Technical and Operational Considerations for Hedge Fund Managers in Connection with Preparing, Filing and Updating Form PF,” The Hedge Fund Law Report, Vol. 4, No. 37 (Oct. 21, 2011).  To bring some clarity to the complexity, on October 25, 2011, Advise Technologies and The Hedge Fund Law Report co-sponsored a seminar on Form PF.  The seminar consisted of two panels, the first focusing on legal questions raised by the form and the second focusing on operational considerations in connection with the form.  At an open meeting held on October 26, 2011, the SEC adopted Rule 204(b)-1 under the Investment Advisers Act of 1940, requiring periodic reporting by private fund managers on Form PF.  (The SEC and CFTC jointly issued the final rule release on October 31, 2011.)  Despite this chronology, the vast majority of the discussion at the seminar remains very relevant to a wide range of hedge fund industry participants; most of the changes from the proposed form to the final form involved thresholds and timing provisions, while the discussion at the seminar focused on market color, best practices, trends and precedent.  For the benefit of those that could not attend the seminar – and as a recap for those who did attend – this article summarizes and, as relevant, updates the discussion during the legal panel.  In particular, this article discusses: the four assets under management (AUM)-based categories that trigger the frequency and content of Form PF filing obligations for hedge fund managers; the definition of a “hedge fund” for purposes of Form PF; how to calculate “regulatory AUM” for purposes of Form PF; aggregating conventions with respect to managed accounts and assets of private funds advised by related persons; issues raised by leverage, funds of funds, non-U.S. advisers and sub-advised hedge funds; removal of the certification requirement from Form PF and the ability to rely on internal methodologies; how final Form PF handles disclosure of value at risk measurements and other risk metrics; and four concerns regarding confidentiality of data in Form PF.  This article is the second in a three-part series on Form PF.  The first article in this series included a line by line comparison of proposed Form PF and final Form PF.  See “Key Legal and Operational Considerations in Connection with Preparing, Filing and Updating Form PF (Part One of Three),” The Hedge Fund Law Report, Vol. 4, No. 39 (Nov. 3, 2011).  The third article in this series will summarize the key points made during the operational panel at the seminar.  Taken together, the three parts of this series are intended to help HFLR subscribers determine whether they have to file Form PF, what they have to file, how they can go about filing and how their obligations have changed from the proposed rule to the final rule.

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  • From Vol. 4 No.39 (Nov. 3, 2011)

    Key Legal and Operational Considerations in Connection with Preparing, Filing and Updating Form PF (Part One of Three)

    Rightly or wrongly, a consensus has emerged among global regulators that private funds – most notably, hedge funds and private equity funds – may collectively pose a risk to the global financial system.  The often cited evidence of this view includes the 1998 collapse of Long Term Capital Management and the 2008 financial crisis.  Neither, of course, conclusively demonstrates that private funds pose systemic risk, and we at The Hedge Fund Law Report have not seen persuasive evidence of the thesis.  In fact, we have seen persuasive evidence to the contrary, namely, that the collective buying power of private funds mitigates systemic risk by providing, if you will, a “buyer of penultimate resort.”  (The taxpayer remains the buyer of last resort.)  When the going gets tough, it is hedge and private equity funds that typically buy the distressed assets, receive novations of derivatives and provide rescue funding to institutions teetering on the brink.  See “Treatment of a Hedge Fund’s Claims Against and Other Exposures To a Covered Financial Company Under the Orderly Liquidation Authority Created by the Dodd-Frank Act,” The Hedge Fund Law Report, Vol. 4, No. 15 (May 6, 2011).  But perception, demagoguery and skewed incentives often affect the shape of legislation and regulation more powerfully than evidence or economic reality.  The perception of risk in the private funds industry has given us the reality of Form PF.  Form PF generally calls for voluminous disclosure by private fund managers to regulators of fund, investor, counterparty, credit and other information.  It calls for a level of disclosure that is unprecedented in the U.S. hedge fund industry.  The form is legally complex and operationally challenging.  On the legal side, its novelty means that there is no direct market practice to assess the form’s application or to guide completion.  On the operational side, its novelty means that managers and service providers do not have dedicated systems in place to create, organize, scrub, update and secure the relevant data.  See “Technical and Operational Considerations for Hedge Fund Managers in Connection with Preparing, Filing and Updating Form PF,” The Hedge Fund Law Report, Vol. 4, No. 37 (Oct. 21, 2011).  To bring some clarity to the complexity, on October 25, 2011, Advise Technologies and The Hedge Fund Law Report co-sponsored a seminar on Form PF.  The seminar consisted of two panels, the first focusing on legal questions raised by the form, and the second focusing on operational considerations in connection with the form.  On October 26, 2011 – the day after our seminar – the SEC adopted Rule 204(b)-1 under the Investment Advisers Act of 1940 requiring periodic reporting by private fund managers on Form PF.  In other words, we discussed proposed Form PF at the seminar and a day later the SEC adopted final Form PF.  However, as detailed in this article, most of the changes from the proposed form to the final form involved thresholds and timing provisions.  While the seminar covered thresholds and timing provisions, the more important discussion at the seminar focused on market color, relevant practice, context and lore.  The final rule did not change any of that; and that is precisely the information that you as a hedge fund manager, investor or service provider need to grapple successfully with Form PF.  Moreover, the final rule says nothing about operations – what you actually have to do to prepare, file and update the form – and that was an important focus of the seminar.  In recognition of the ongoing relevance of the discussion at the seminar, The Hedge Fund Law Report is publishing a three-part series on changes to Form PF and the key legal and operational points made by seminar participants.  This article – the first part of the three-part series – provides a line-by-line comparison of proposed Form PF and final Form PF, including the instructions and the form itself.  To do so, this article links to a redline prepared by Advise Technologies highlighting the differences between the proposed and final instructions and forms.  The second article in this series will summarize the key legal points made at the seminar, and the third article in this series will summarize the key operational points made at the seminar.  Taken together, the three parts of this series are intended to help HFLR subscribers determine whether they have to file Form PF, what they have to file, how they can go about filing and how their obligations have changed from the proposed rule to the final rule.

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  • From Vol. 4 No.37 (Oct. 21, 2011)

    Technical and Operational Considerations for Hedge Fund Managers in Connection with Preparing, Filing and Updating Form PF

    The Financial Stability Oversight Council (FSOC) recently approved a proposed rule and guidance setting out the metrics and process it would use to designate a nonbank financial company as systemically important under the Dodd-Frank Act.  In that proposed rule, the FSOC noted that “[w]ith respect to hedge funds and private equity firms . . . less [systemic risk related] data is generally available about these companies than about certain other types of nonbank financial companies.”  Accordingly, “[b]eginning in 2012, advisers to hedge funds and private equity firms and commodity pool operators and commodity trading advisors will be required to file Form PF with the Securities and Exchange Commission or the Commodity Futures Trading Commission, as applicable, on which form such companies will make certain financial disclosures.  Using these and other data, the [FSOC] will consider whether to establish an additional set of metrics or thresholds tailored to evaluate hedge funds and private equity firms and their advisers.”  In its proposed form, Form PF calls for voluminous and detailed disclosure of financial, risk, counterparty and other information by hedge fund managers.  Understanding the scope of required information presents complicated legal challenges, and complying with the anticipated disclosure obligations presents unique operational challenges.  Accordingly, on October 25, 2011 – Tuesday of next week – Advise Technologies and The Hedge Fund Law Report will be co-sponsoring a seminar on legal and operational considerations for hedge fund managers in connection with completing, filing and updating Form PF.  The seminar will take place from 8:00 a.m. to 10:00 a.m. at the Helmsley Hotel at 212 East 42nd Street in Manhattan.  To register, click here or call 212-576-1170.  In anticipation of the seminar, The Hedge Fund Law Report interviewed Stephen Casner, CEO of HazelTree Fund Services, on how hedge fund managers can negotiate some of the more complex operational challenges presented by Form PF.  The full text of our interview is included in this issue of The Hedge Fund Law Report.

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