[ by Melanie Gretchen ]

Navigating the SEC isn't as easy as ABC – and it shouldn't be.  However, everyone can benefit from FAQ's and answers to those questions, specifically with regard to general filing information and hedge funds. The SEC provides a fountain of information, and to for further details and answers on these and other questions - including Liquidity Funds, Private Equity Funds, Aggregation, Fund of Funds, Definitions, and Master-Feeder Arrangements - go to   [SEC Form, Private Funds].

Below is a sampling of the answers to the FAQ's ...

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Section A: General Filing Information

Q. A.1:    I have a related person that is registered as an investment adviser ("IA") and identified on my or my related person’s Form ADV as a relying adviser or special purpose vehicle (“SPV”) in reliance on the no action letter issued to the American Bar Association on 1/18/12.  How do I include such related person in Question 1(b) given that the related person does not have a separate CRD or SEC file number?

A. A.1:    We have upgraded the Private Fund Reporting Depository to allow filers to add a relying adviser or SPV as a related person on Form PF in Question 1(b).  Filers may now check a box (or use a special tag in an XML submission) indicating that the listed adviser is a relying adviser or SPV on the Form PF.  (Updated 11/20/12)

Q. A.2:    I am a registered adviser with more than $1 billion attributable to liquidity funds and money market funds that filed my initial report on Form PF before 7/16/12.  In programming our internal systems to report the information required by Form PF to meet our filing deadline, we made assumptions regarding how to respond to certain questions in the Form, some of which may be inconsistent with the guidance that has since been provided by the Staff. Should I amend the report that I’ve already filed regarding liquidity funds before my next quarterly filing obligation?

A. A.2:    The Staff would not object if you do not amend the report you filed to meet your 7/16/12 filing deadline if the assumptions you made regarding how to respond to certain question were inconsistent with the guidance that has since been provided by the Staff.  You should reflect the Staff guidance in future required reports and, in your next required filing, note in Question 4 any assumptions made in your initial filing that were inconsistent with the Staff guidance.   (Posted 7/19/12)
 

Q. A.3:    I am a registered adviser with more than $5 billion in assets under management attributable to hedge funds that, as a result of the 6/15/12 compliance date of Form PF, is required to file my initial report on Form PF before 8/29/12. In programming our internal systems to report the information required by Form PF to meet our filing deadline, we made assumptions regarding how to respond to certain questions in the Form, some of which may be inconsistent with the guidance provided by the Staff after we programmed our internal systems to meet our initial filing deadline. Should I delay filing my report regarding hedge funds until I can reprogram my internal systems to reflect the Staff guidance?

A. A.3:    You should meet your initial filing deadline.  However, the Staff would not recommend enforcement action under section 207 of the Advisers Act if a large hedge fund adviser required to comply with the 6/15/12 compliance date of Form PF is unable to incorporate the guidance provided by the Staff prior to filing its initial report, provided that:

• the adviser’s assumptions in completing its initial report were reasonable based on the facts and circumstances governing at the time its reporting system was being developed,
• the assumptions or other approaches taken by the adviser in reporting information on Form PF that are inconsistent with Staff guidance are identified in Question 4, and
• future required reports reflect the Staff guidance. (Posted 7/19/12)

Q. A.4:    One of my reporting funds has been issued a CFTC Interim Compliant Identifier (“CICI”). May I use the CICI in response to questions on Form PF that request the reporting fund’s LEI?

A. A.4:    Yes. The CFTC has designated DTCC-SWIFT as the provider of CICIs to certain market participants under the CFTC’s jurisdiction, including swap counterparties. The CFTC has stated that it expects that assigned CICIs will transition into the LEIs assigned to market participants when the global LEI system is established by an internationally-recognized setting body. See CFTC Announces Designation of DTCC-SWIFT as the Provider of CFTC Interim Compliant Identifiers, Release: PR6310-12 (7/24/12). (Posted 11/20/12)

 
Q. A.5:    Am I required to identify all of my related persons in Question 1(b)?

A. A.5:    No. Form PF permits (but does not require) related persons to report on a single Form PF information with respect to such related persons and the private funds they advise as a matter of convenience for affiliated entities. See Instruction 2. You are only required to identify a related person in Question 1(b) if you are reporting information on your Form PF with respect to that related person. (Posted 3/8/13)
 

Section B: Hedge Funds

Q. B.1:    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?

A. B.1:    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 (i.e., it may charge a performance fee, employ large amounts of leverage, or sell assets short). (Posted 6/8/12)

Q. B.2:    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 (because, for example, its fund documents change to include the ability to engage in short selling), must I change how I categorize that fund for reporting purposes and does it affect whether I am a large hedge fund adviser?

A. B.2:    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.  See Instruction 3.  See also definition of qualifying hedge fund.

For example, you are an adviser with a 12/31 fiscal year end whose only client is a private fund with $1.6 billion in assets that does not and did not previously meet the definition of a hedge fund; however, on 7/18, the characteristics of the private fund change such that going forward it meets the definition of a hedge fund (and also a qualifying hedge fund).  In this instance, for the fiscal quarters ending 3/31, 6/30, and 9/30, you would not be a large hedge fund adviser with a quarterly filing obligation and the private fund would not be a qualifying hedge fund for reporting purposes. In accordance with Instruction 3, at the beginning of a fiscal quarter, you would determine whether you have a quarterly hedge fund reporting obligation with respect to that fiscal quarter by looking back to the immediately preceding fiscal quarter.  For example, for purposes of your third quarter ending 9/30, at the beginning of that quarter on 7/1, you would look back to the last day of the month for April, May, and June to determine if the private fund was a hedge fund. Similarly, in accordance with the qualifying hedge fund definition, this private fund would not be a qualifying hedge fund for reporting purposes for the quarter ending 3/31, 6/30, and 9/30.  

You would, however, be a large hedge fund adviser subject to a quarterly filing obligation with respect to your fourth fiscal quarter ending December 31 because the private fund meets the definition of a hedge fund on July 31 (i.e., the last day of any month in the third quarter) and you have over $1.5 billion in hedge fund assets under management on that date. (Posted 6/8/12)
 

Q. B.3:    For purposes of Form PF (and Form ADV), a hedge fund is defined to include any private fund that may have “gross notional exposure” in excess of twice its net asset value . Does the term “gross notional exposure,” which is undefined, have the same meaning as the defined term “gross notional value?”

A. B.3:    Yes. (Posted 6/29/12)