The U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), on February 8, 2024, jointly adopted amendments to Form PF. The SEC and CFTC had originally proposed these amendments on August 10, 2022. Many of the proposed amendments have been adopted and will expand the reporting requirements, making the form significantly more complex for hedge fund and liquidity fund advisors. The effective and compliance date will be 12 months from the date the rule is published in the Federal Register.
The changes are extensive with expanded data requirements and the new form will look very different, requiring substantial work and resources to implement successfully in a short time period.
What’s different and who is impacted?
Calculating Threshold Advisors must include the value of private fund investments in other private funds (including internal and external private funds) in determining whether the advisor meets the filing threshold to file Form PF for reporting as a large hedge fund advisor, large liquidity fund advisor, or large private equity fund advisor, and whether a hedge fund is a qualifying hedge fund.
Master-Feeder Funds:
Master-feeder funds can no longer be aggregated for reporting, and trading feeders would require separate reporting. However, a disregarded feeder fund (a feeder fund that invests all of its assets in a single master fund, U.S. treasury bills, and/or cash and cash equivalents) would not be subject to separate reporting.
Trading Vehicles and Parallel Funds:
Advisors must identify trading vehicles in Section 1b. Trading Vehicles do not require separate reporting but must be proportionately aggregated with the respective reporting funds on a consolidated basis.
Regarding parallel funds, filers can no longer aggregate and report only the largest fund in the parallel fund structure and will have to report each component fund separately.
Section 1a and 1b: (Impact on all advisors)
- Increased fund details required (including but not limited) to identify funds as a Commodity Pool, UCITS, AIF, open/closed ended, etc. Separate details of Trading vehicles, Parallel funds.
- Inclusion of Gross Reporting fund aggregated calculated value and net reporting fund aggregated calculated value if GAV and NAV are not calculated for months 1 and 2 of the reporting period.
- Increased investor details with respect to subscriptions and redemptions, suspension, and material restrictions on withdrawals along with an increased number of investor classification buckets.
- Performance returns: IRR, if calculated, is to be reported separately. Also reporting of Annualized Volatility of returns along with information on peak to trough drawdowns may require pulling of daily extracts.
Section 1c: (Impact on all hedge fund advisors)
- Consolidated counterparty Exposure Table: Inclusion of Borrowing/Collateral received and Lending/Collateral Posted for – Existing prime broker, Repo/Reverse Repo, Short Securities, Other Borrowings, and newly added separate categorization for Derivatives cleared via CCP and non-CCP.
- Trading and Clearing Mechanism: Inclusion of Interest rate Derivatives as a new asset category. Also, reporting of positional value is now required.
- Strategies list is also expanded to include digital assets.
Section 2: (Impact on large hedge fund advisors)
- Filers will no longer have to report two different sections, Section 2a and Section 2b; instead, each qualifying fund will now have to report a separate Section 2.
- Change in asset classification buckets wherein instruments will have to be classified into a relevant sub-asset type and instrument type with the investment exposure and adjusted exposure.
- Section 2 also includes detailed borrowing and counterparty exposure, reference assets and market factor effects.
- Newly added questions also include exposure to currency, country and industry, as well as added classifications for derivatives turnover.
What should managers be doing now to get ready for the new Form PF?
The volume and complexity of the data needed to meet the requirements of these amendments to Form PF will increase greatly from current reporting standards.
Managers need to ask themselves these six questions today:
- What are my increased data requirements for the revised Form PF?
- How easily can I access this data?
- What resources and skills do I need to meet these requirements while completing the current Form PF and implementing other new SEC Reporting requirements?
- Do I build an in-house solution or outsource this to a third party?
- How many parallel runs do I need to perform to be confident I will be compliant from day one?
- Do I need to make any changes to future-proof my compliance strategy?
By answering these six questions, you will be well-placed to meet the deadlines set for the new Form PF. SS&C GlobeOp provides an end-to-end regulatory solution that includes the creation of a validated regulatory book of records, an explanation of the data required, mapping of data, aggregation, comparison of the methodology used by peers, production of reports for review, compliance with new rules and data analytics.
Contact us today to learn more about how PF changes may affect you, and how SS&C can help you meet these new reporting requirements. It’s time to get ready now.
