Form PF

As part of the ongoing effort to provide greater transparency to the investment management industry in the wake of the financial crisis of 2008, earlier this year the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) proposed Rule 204(b)-1 under the Investment Advisers Act of 1940.  Significantly, Rule 204(b)-1 requires SEC registered investment advisers to report information about private funds on newly developed Form PF, marking a major sea change in the regulatory oversight of hedge funds and other private investment funds.

On October 26, 2011, the SEC voted to adopt the version of Rule 204(b)-1 summarized below (the CFTC is expected to vote on the rule shortly, after which a jointly approved final rule can be released).  Due to intense lobbying from hedge fund advocacy groups, several important concessions are reflected in the current version of the rule.

Initial reports on Form PF will be required in two stages: (1) Advisers with $5 billion or more in assets under management (“AUM”) must file the initial form within 60 days of the quarter ending June 30, 2012; and (2) advisers with AUM of $150 million or more but less than $5 billion must file the initial form within 60 to 120 days of the end of 2012.

Form PF will be filed with the SEC through the Financial Industry Regulatory Authority (“FINRA”), the largest independent regulator for all securities firms doing business in the U.S. and the operator of the Investment Adviser Registration Depository (“IARD”).  FINRA will impose a $150 filing fee for each Form PF annual/quarterly update.

We will provide further analysis of the final rule once it has been released.  In the interim, managers of private funds are encouraged to begin familiarizing themselves with Form PF in preparation for the rule’s implementation.  Proposed Form PF can be found here.  Although smaller fund advisers will initially be unaffected by the enhanced reporting requirements of Form PF, such managers should be mindful of the increased transparency initiative nonetheless, especially as states continue to track changes in federal securities laws at the state level.

Please contact us if you have any questions regarding Form PF or its potential impact on fund managers.