The Securities and Exchange Commissions (SEC) lowered the asset reporting threshold of the 2010 Dodd-Frank Act, thereby requiring that thousands of alternative investment funds file Form PF. Form PF increases transparency in the marketplace by requiring managers to disclose information regarding the fund's strategy, position, assumption, conflicts of interest, and rates of return.
Sean O'Malley, capital markets partner at law firm White & Case, said the primary purpose of the form is to provide market-risk data to the Financial Stability Oversight Council. "But the SEC has the data, too, and can use it as they need to assess how funds are doing, what they're doing," he said.
O'Malley said his firm has mainly been advising its fund clients on the language in the form and the "judgment calls" on whether certain information should be included and, if so, where on the form to put it. "Private equity funds and hedge funds have their own ways of categorizing their assets and thinking about their funds, but Form PF has very specific definitions and you have to follow those definitions," he said.
"Sometimes people were surprised their funds technically fell into a different definition," O'Malley said, adding the complexities of the form required some firms to spend four to five months working to get it completed.
One thing a lot of fund managers worry about with Form PF is this performance data, O'Malley said.
For many firms, this is the first time they have had to file the form. The relative cluelessness surrounding the exercise has prompted the SEC to publish a list of frequently asked questions. As it was the first time, O'Malley said the SEC showed some leniency to the first big funds that had to file, saying firms would not have to file amended forms if assumptions they made regarding how to respond to certain questions were found to be inconsistent with SEC guidance.
"This time around with the smaller funds, I don't want to say all the questions have been answered, but there will probably be less leniency at this point now that they issued their frequently asked questions and things are a lot clearer," O'Malley said.
As for any hedge fund that has to file the form and that hasn't yet begun working on it, they are probably in "bad shape," O'Malley said.