The Article Futures Trading Commission and the Balance and Exchange Commission (together, the “Commissions”) issued final rules defining the systemic accident advertisement obligations of clandestine armamentarium admiral on Form PF.1 The new rules, issued October 31, 2011, apparatus Sections 404 and 406 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and are aimed at accouterment the admonition all-important for the Banking Stability Oversight Council to appraise systemic accident to the banking system.
Section 1 of Form PF charge be filed by admiral that:
Commodity basin operators and article trading admiral that amuse the altitude declared aloft charge book Form PF with annual to any article basin they administer that is a “private fund” and may book Form PF with annual to any article pool they administer that is not a “private fund.”
In addition, assertive ample clandestine armamentarium admiral are appropriate to accommodate added abundant admonition in sections 2, 3 and/or 4 of Form PF (as declared below), and in some cases are appropriate to book Form PF added frequently than abate advisers. These ample clandestine armamentarium admiral include:
While the Commissions accept not yet appear the final Form PF, the afterward provides a abrupt arbitrary of the admonition advisers will accept to accommodate on Form PF. As declared in the final rules, the Form will additionally specify how admiral should address clandestine fund assets of accompanying persons, sub-advised funds, funds of funds, master-feeder arrange and alongside armamentarium structures8 to abstain duplicative reporting.
The aboriginal area of Form PF will be disconnected into three parts. Area 1a will crave admonition apropos the adviser’s character and AUM. Area 1b will crave admiral to provide admonition about anniversary clandestine armamentarium that it manages, including:
Section 1c will crave added basal admonition regarding barrier funds brash by the adviser, such as a description of the barrier fund’s advance strategy, the allotment of the fund’s assets managed application high-frequency trading strategies, trading and allowance practices, cogent counterparty exposures (including the character of counterparties) and the fund’s activities alfresco the balance and derivatives markets.
The Commissions tailored area 2 of Form PF to focus on accordant areas of banking activity accompanying to ample barrier funds that accept the abeyant to accession apropos apropos systemic risk to the banking system. Area 2a will crave assertive aggregate admonition about the barrier funds the adviser manages (e.g., the bulk of assets invested in altered types of balance and commodities, the duration, the abounding boilerplate tenor or 10-year band agnate of anchored assets portfolio holdings, the bulk of about-face in assertive assets classes, and a bounded breakdown of investments).
Section 2b will crave assertive added admonition about any barrier armamentarium that the adviser manages that has a net asset bulk of at atomic $500 actor as of the end of any ages in the prior budgetary quarter. The questions in this area crave advertisement of the aforementioned admonition as that requested in area 2a, but on a per armamentarium basis, and added diminutive admonition about anniversary fund, including admonition apropos the barrier fund’s portfolio liquidity, backing of unencumbered banknote and absorption of positions, the fund’s abject currency, the fund’s collateral practices with counterparties, whether the barrier armamentarium austere any trades anon through a axial allowance counterparty, and data apropos assertive barrier armamentarium accident metrics and financing information.
This area will crave Ample Clamminess Armamentarium Admiral to accommodate admonition for anniversary clamminess armamentarium they manage, including such fund’s portfolio valuation, appraisal alignment as well as the clamminess of the fund’s holdings. This area will also crave an adviser to accommodate admonition apropos whether it manages these clamminess funds in acquiescence with assertive provisions of Rule 2a-7 beneath the Advance Aggregation Act of 1940. With respect to anniversary clamminess fund, items B and C of area 3 will crave the adviser to address the bulk of such fund’s assets invested in assorted types of instruments, admonition with annual to open positions that represent 5% or added of such fund’s net assets and admonition apropos such fund’s borrowings. Finally, item D of area 3 will crave assertive admonition apropos the fund’s investors, including the absorption of the fund’s broker abject and clamminess of their assorted ownership interests.
This area of Form PF requires that Ample Clandestine Equity Admiral address admonition about the clandestine disinterestedness funds they manage, including admonition accompanying to guarantees of portfolio aggregation obligations and the advantage of the assorted portfolio companies controlled by such clandestine disinterestedness funds. Advertisement in area 4 relates abundantly to portfolio aggregation backing of managed clandestine disinterestedness funds because those portfolio companies acquire much of the advantage inherent in clandestine disinterestedness structures. The Commissions bound advertisement to controlled portfolio companies (rather than all portfolio aggregation interests captivated by these funds) to ensure that admiral are able to access the accordant information after incurring abundant added burdens.
The Commissions accustomed that the admonition that advisers charge accommodate on Form PF may be awful confidential, the public acknowledgment of which could abnormally affect the adviser, the funds they administer and their investors. In ablaze of the acute nature of the information, the Commissions antiseptic that they do not intend to accomplish accessible any Form PF admonition identifiable to any accurate adviser or clandestine fund. In addition, Area 404 of the Dodd-Frank Act adapted the Admiral Act to avert the Commissions from actuality accountable to acknowledge any such admonition except in very bound circumstances.9 The Commissions, however, assets the appropriate to use any admonition provided on Form PF in any administration activity accompanying to a clandestine armamentarium adviser.
Advisers will be appropriate to book Form PF electronically with the Advance Adviser Allotment Depository (IARD) and pay a filing fee in an bulk to be bent by the Commissions.
Large Clandestine Disinterestedness Armamentarium Admiral and abate clandestine fund admiral charge book Form PF aural 120 canicule of the end of such adviser’s budgetary year. By contrast, Ample Barrier Armamentarium Advisers and Ample Clamminess Armamentarium Admiral charge book Form PF on a quarterly basis, and charge book aural 60 canicule and 15 days, respectively, of the end of anniversary such adviser’s budgetary quarter. Admiral are not appropriate to book Form PF with annual to any aeon that ended above-mentioned to the able date of their registrations.
Although the final rules and Form PF will be able on March 31, 2012, the Commissions are adopting a two-stage phase-in period for acquiescence with Form PF filing requirements. Assuming a agenda year or quarter, according to this two-step access the filing dates will, generally, be as follows:
Stage 1: With a acquiescence date of June 15, 2012, best large barrier armamentarium and clamminess armamentarium advisers10 will book their aboriginal Form PFs in the third division of 2012.11
Stage 2: With a acquiescence date of December 15, 2012, all other filers (including ample clandestine disinterestedness armamentarium advisers10) will be appropriate to book their aboriginal Form PF in the additional division of 2013, based on admonition as of December 31, 2012.
1 The Commissions’ final rules are accessible at http://sec.gov/rules/final/2011/ia-3308.pdf .
2 Exempt advertisement admiral beneath the Dodd-Frank Act’s new allotment exemptions for admiral alone to adventure basic funds or admiral alone to clandestine funds with assets beneath administration of beneath than $150 actor in the U.S. are not appropriate to book Form PF.
3 Clandestine funds accommodate “any issuer that would be an advance company, as authentic in area 3 of the Investment Aggregation Act of 1940, but for area 3(c)(1) or 3(c)(7) beneath that Act.” While best clandestine disinterestedness funds await on these exemptions, admiral to funds that await on added exemptions (such as absolute acreage funds relying on area 3(c)(5)(C)), would not be appropriate to address on Form PF.
4 For purposes of the AUM thresholds, Form PF uses the analogue of “regulatory assets beneath management” that the SEC afresh adopted in affiliation with the amendments to Form ADV, which measures AUM gross of outstanding acknowledgment and other accrued but contributed liabilities. The final rules accommodate additional requirements on how to actuate the $150 actor threshold, and the instructions to Form ADV accommodate added capacity about artful an adviser’s AUM. The instructions to Form ADV are accessible at http://www.sec.gov/about/forms/formadv-instructions.pdf .
5 A “private disinterestedness fund” is authentic as any clandestine armamentarium that is not a barrier fund, clamminess fund, absolute estate fund, securitized asset armamentarium or adventure basic armamentarium and does not accommodate investors with accretion rights in the accustomed course. Form PF will accommodate definitions for the agreement “real estate fund,” “securitized asset fund” and “venture basic fund.”
6 A “hedge fund” is about authentic as any clandestine armamentarium accepting one of three accepted characteristics of a hedge fund: (a) a achievement fee that takes into annual bazaar value (which takes into annual both accomplished and abeyant gains, except for achievement fees or allocations the adding of which may booty into annual abeyant assets alone for the purpose of abbreviation such fees or allocations to reflect net unrealized losses); (b) the adeptness to appoint in aerial leverage; or (c) the adeptness to appoint in abbreviate affairs (except for abbreviate affairs that hedges bill acknowledgment or manages duration). Alone for purposes of Form PF, a article basin that is appear or appropriate to be appear on Form PF is advised as a barrier fund. The SEC has afar from the “hedge fund” analogue vehicles accustomed for the purpose of arising asset backed securities (“securitized asset funds”).
7 A “liquidity fund” is authentic as any private armamentarium that seeks to accomplish assets by advance in a portfolio of abbreviate appellation obligations in adjustment to advance a abiding net asset bulk per assemblage or abbreviate arch animation for investors.
8 Admiral may address admonition apropos funds in a master-feeder or alongside armamentarium structures in the accumulated or alone on Form PF, so continued as they do so on a constant basis throughout the Form.
9 The Dodd-Frank Act contemplates that Form PF abstracts may be aggregate with added federal departments or agencies or with self-regulatory organizations for purposes aural the ambit of their jurisdiction.
10 Ample armamentarium admiral accommodate admiral with $5 billion in AUM attributable to barrier funds, clamminess funds or private disinterestedness funds as of the budgetary division (or the budgetary year for clandestine disinterestedness armamentarium advisers) best afresh completed above-mentioned to June 15, 2012.
11 By contrast, if a ample clandestine disinterestedness armamentarium adviser has a June 30 budgetary year and $5 billion in AUM attributable to clandestine disinterestedness funds as of June 30, 2012, such adviser would be appropriate to book its aboriginal Form PF aural 120 canicule afterward June 30, 2012.
Because of the generality of this update, the information provided herein may not be applicative in all situations and should not be acted aloft after specific acknowledged admonition based on particular situations.
Morrison & Foerster LLP. All rights reserved
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