The Securities and Exchange Commission has issued a collection of “frequently asked questions” regarding the new Form PF required of registered investment advisers that manage $150 million or more in assets attributable to private funds.

The document seeks to clarify the categorization of hedge funds, liquidity funds and private equity funds as it pertains to the filing. It also provides general guidance pertaining to the aggregation of assets/parallel funds and reporting requirements for a fund of funds.

As mandated by the Dodd-Frank Act, the SEC and Commodity Futures Trading Commission adopted rules that require qualifying  private fund advisers to file Form PF on at least an annual basis. The intent of the filings, which will remain confidential, is to aid regulators as they monitor systemic risk and facilitate examinations and enforcement.

“Large private fund advisers" will need to provide additional information that goes beyond what is required of their  smaller peers. These are defined as: having at least $1.5 billion in assets under management attributable to hedge funds; holdingat least $1 billion in combined assets attributable to liquidity funds and registered money market funds; or, at least $2 billion in assets attributable to private equity funds.

Among the questions and responses offered by the SEC:

The form specifies that a commodity pool is categorized as a hedge fund for reporting purposes. Under CFTC interpretations, a private fund that holds a single commodity interest position may be a commodity pool. Am I required to treat a private fund as a commodity pool if such private fund's commodity interest positions are de minimis? 

You should not categorize a private fund as a commodity pool for reporting purposes if the private fund's commodity interest positions satisfy either of the de minimis tests in Regulation 4.13(a)(3)(ii) issued by the CFTC. Accordingly, you would only have to categorize such a private fund as a hedge fund if it otherwise meets the definition of a hedge fund.

A hedge fund is defined generally to be any private fund that has the ability to pay a performance fee to its adviser, borrow in excess of a certain amount, or sell assets short.  If I advise a private fund that previously did not meet this definition, but later does meet this definition (for example, its fund documents change to include the ability to engage in short selling), must I change how to categorize that fund for reporting purposes?   

Yes, the categorization of a private fund as a hedge fund may change from reporting period to reporting period, which in turn may affect whether you are a large hedge fund adviser with respect to a particular reporting period.  With respect to any fiscal quarter, a private fund should be categorized as a hedge fund if it met the definition of a hedge fund as of the last day of any month in the fiscal quarter immediately preceding your most recently completed fiscal quarter. 

I advise a private fund that meets the definition of both a liquidity fund and a hedge fund. Am I required to report that private fund as both a liquidity fund and a hedge fund? 

Yes. The definitions of a liquidity fund and a hedge fund are not mutually exclusive and, as a result, certain private funds may meet the definition of both. For such a private fund, you should include it in the calculation of hedge fund assets under management and liquidity fund assets under management and complete each section applicable to hedge funds and liquidity funds.

I advise a private fund that would be categorized as a private equity fund, except for the fact that the fund documents allow the fund to either employ large amounts of leverage or sell assets short. However, the fund does not, nor does it intend to, incur leverage or short any assets. May I treat this private fund as a private equity fund instead of as a hedge fund for reporting purposes?  

In adopting the Form, the Commission considered, but did not accept, arguments that the leverage and shorting characteristics in the definition of “hedge fund” should focus on actual or contemplated use, rather than potential use.

Instruction 7 specifies that a filer may disregard certain private funds and a private fund's equity investments in other private funds. If I only advise disregarded private funds (or private funds whose investments may be disregarded), am I required to report on Form PF?  

Yes. You are required to file a Form PF if the private fund assets you and your related persons manage collectively meet or exceed $150 million in private fund assets under management. Disregarded private funds and disregarded investments would not, however, be included for purposes of determining whether the filer meets any of the large private fund adviser thresholds or the $5 billion compliance date thresholds.