Tag: IA 3308

Gathering Information on Your Private Fund Investors

One item that I picked up from PEI’s recent Private Fund Compliance Conference is the new way you need gather information about investors in your private fund for Form PF. I put Form PF to the side because my filing is not required until next year. However, there is a key March 31, 2012 date in the Adopting Release for Form PF (.pdf).

In Section 1b, Item B. Question 16 (.pdf)Form PF  asks the manager to “specify the approximate percentage of the reporting fund’s equity that is beneficially owned” by the listed category of investors. You need to file Form PF if you listed private funds in your Form ADV.

The catch in the instruction is:

With respect to beneficial interests outstanding prior to March 31, 2012, that have not been transferred on or after that date, you may respond to this question using good faith estimates based on data currently available to you.
(my emphasis)

If you are fundraising now, it looks like you need to make sure your subscription documents require the investor to self-select their designation. I suppose you also need to do some diligence to make sure the selection is correct.

Even if you’re not fundraising, you need to address this change for any transfers in a private fund after March 31, 2012.

The analysis for which sections of Form PF you need to fill out is a bit complicated. But every private fund needs to fill out Section 16 and answer the question about the beneficial ownership of the fund. Every private fund needs to start gathering information about their investors using this data scheme:

(a) Individuals that are United States persons (including their trusts);
(b) Individuals that are not United States persons (including their trusts);
(c) Broker-dealers;
(d) Insurance companies;
(e) Investment companies registered with the SEC;
(f) Private funds;
(g) Non-profits;
(h) Pension plans (excluding governmental pension plans);
(i) Banking or thrift institutions (proprietary);
(j) State or municipal government entities (excluding governmental pension plans);
(k) State or municipal government pension plans;
(l) Sovereign wealth funds and foreign official institutions; or
(m) Investors that are not United States persons and about which the foregoing beneficial ownership information is not known and cannot reasonably be obtained because the beneficial interest is held through a chain involving one or more third-party intermediaries.
(n) Other

 

Sources:

Real Estate Funds and Form PF

In addition to filing Form ADV with the SEC when they register with the Securities and Exchange Commission, private fund managers will also need to start filing Form PF. I received a helpful reminder about this last week form SEC’s IARD system. (I’ll need to get used to messages with the subject line: “Firm 158137: An Important Message from the SECURITIES AND EXCHANGE COMMISSION”.)

SEC-registered investment advisers that manage one or more private funds and, collectively with an adviser’s related persons, had at least $150 million in private fund assets under management will be required to file Form PF in the future (beginning either after June 2012 or December 2012 depending upon each adviser’s specific situation). Please see Form PF and its general instructions for additional information … and the SEC’s recently adopted rule …. Please note that advisers report private funds in Item 7.B on Form ADV as well. Form PF will be filed in the future either through an online form or through an XML submission process.

The amount of information required by Form PF is tiered, depending on the type of fund. Hedge funds have the biggest burden.

Where do real estate funds fit into the reporting requirements?

In the glossary, a Real estate fund is

Any private fund that is not a hedge fund, that does not provide investors with redemption rights in the ordinary course and that invests primarily in real estate and real estate related assets.

That sounds right, but I still need to look at the definition of Hedge fund:

Any private fund (other than a securitized asset fund):
(a) with respect to which one or more investment advisers (or related persons of investment advisers) may be paid a performance fee or allocation calculated by taking into account unrealized gains (other than a fee or allocation the calculation of which may take into account unrealized gains solely for the purpose of reducing such fee or allocation to reflect net unrealized losses);
(b) that may borrow an amount in excess of one-half of its net asset value (including any committed capital) or may have gross notional exposure in excess of twice its net asset value (including any committed capital); or
(c) that may sell securities or other assets short or enter into similar transactions (other than for the purpose of hedging currency exposure or managing duration).

That definition talks about getting performance fees on unrealized gains. That would be unusual for a real estate fund or private equity fund.

The form also has more detailed requirements for large private equity advisers. For purposes of Form PF, “private equity fund”is

any private fund that is not a hedge fund, liquidity fund, real estate fund, securitized asset fund or venture capital fund and does not provide investors with redemption rights in the ordinary course.

So a real estate fund is not a private equity fund and not subject to the additional reporting requirements.

The last category that has enhanced reporting is liquidity fund advisers:

Any private fund that seeks to generate income by investing in a portfolio of short term obligations in order to maintain a stable net asset value per unit or minimize principal volatility for investors.

That leaves real estate funds reporting the information in Section 1a and Section 1b. That’s still a great deal of information.

Being a member of the “all other advisers” category, the filing is due with 120 days after the end of the fiscal year. Assuming calendar year is my fiscal year, the first filing is due by April 30, 2013.

Sources:

Form PF and Private Funds

IN addition to filing Form ADV with the SEC when they register with the Securities and Exchange Commission, private fund managers will also need to start filing Form PF next year. The amount of information required by Form PF is tiered. Advisers managing less than $150 million in private funds are not required to file, as these firms are not likely to generate systemic risk within the financial industry. Smaller private fund advisers must file Form PF only once a year within 120 days of the end of the fiscal year, and report only basic information regarding the private funds they advise. This includes limited information regarding size, leverage, investor types and concentration, liquidity, and fund performance. Smaller advisers managing hedge funds must also report information about fund strategy, counterparty credit risk, and use of trading and clearing mechanisms. Larger private fund advisers must provide more detailed information than private fund advisers. For example, large hedge fund advisers managing more than $1.5 billion (this threshold was raised from $1 billion in the proposed rule) need to file additional information on Form PF. Large private equity advisers with $2 billion in assets under management (this threshold was raised from $1 billion in the proposed rule) also must submit additional information on Form PF. Altogether, the seven types of private fund defined in Form PF are: (1) hedge fund; (2) liquidity fund; (3) private equity fund; (4) real estate fund; (5) securitized asset fund; (6) venture capital fund; and (7) other private fund. For real estate private equity funds, the FORM PF defines “private equity fund” as any private fund that is not a hedge fund, liquidity fund, real estate fund, securitized asset fund or venture capital fund and does not provide investors with redemption rights in the ordinary course. So real estate funds should only have to make the shorter annual report. Regarding timeframes, smaller private fund advisers and smaller private equity fund advisers only need to file Form PF once per year. Larger hedge fund advisers must file Form PF quarterly and have 60 days after each quarter ends to submit the form. (This is longer than the originally proposed 15 days.) Most private fund advisers will be required to begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after December 15, 2012. However, three categories of advisers must begin filing Form PF following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after June 15, 2012:

  • Advisers with at least $5 billion in assets under management attributable to hedge funds.
  • Liquidity fund advisers with at least $5 billion in combined assets under management attributable to liquidity funds and registered money market funds.
  • Advisers with at least $5 billion in assets under management attributable to private equity funds.

One other noteworthy change to Form PF requirements is that advisers will not be required, as originally proposed, to formally certify that information submitted on Form PF is “true and correct” under penalty of perjury. SEC has chosen FINRA to accept Form PF filings. That means more use of the IARD filing system. And perhaps, moving a step closer to FINRA becoming the SRO for investment advisers. Sources: