Amendments to Form PF: Best Practices for Private Funds to Implement

Today, to share some helpful insight on Form PF and some of the changes is Cathal Connolly, Global Head of Regulatory Solutions at AQMetrics. We appreciate you coming in and joining us today, and we'll get right into the questions. What is Form PF and who has to file it?

Cathal Connolly:

Yeah, good question. So Form PF was introduced, really, after the 08 crash. Obviously, there was the financial turmoil at the time, so the regulators, the SEC, the CFTC, they all got together because they wanted to monitor the markets, the financial industry. Just to make sure that they can foresee or try and avoid any further financial crashes. So it was 2011, we saw the introduction of Form PF. There's been no, I suppose, changes as such to it since the initial filings in 2012 when it went live. But Form PF is for advisors that are registered with the SEC. So once they're registered with the SEC and they meet certain thresholds, then they will be filing Form PF.

With regards to the options, you may have an annual filer or a quarterly filer for the Form PF. And again, these are going to the SEC. The SEC is using it, again, the details and the data within this to monitor the industry. So to see, I suppose, kind of individual advisors' exposures, but also banks exposure, so counterparties exposures as well, because obviously, back in 2008 in the financial crash, there was an awful lot of turmoil with the large banks.

TaNeka Ray:

Well, thank you for that explanation. That leads me into my next question. Can you explain some of the recent changes?

Cathal Connolly:

Yeah, I suppose, as I mentioned, there hasn't been any significant changes in the time since its original launch. So the SEC has looked into it now. The industry has changed an awful lot. We're seeing the introduction of new asset classes, new investment types, new strategies. So an awful lot of this detail currently is being missed. The SEC, obviously, have taken this all away and want to ensure that while they are monitoring the industry, are they monitoring it enough that they can actually catch if there is further exposure. So crypto, digital assets, things like that have obviously taken off largely in the last number of years. Private equity as well. Private equity has been growing for a number of years, but they want to make sure that they're catching all of these new asset types.

The changes that are coming in, I suppose it's going into an awful lot more detail. Previously, and this is for every filer, so previously... Well, sorry, not previously. Currently, the main filers that would actually be doing it would be quarterly qualifying funds. So when I say qualifying funds, it's where they've a NAV that is greater than 500 million in the previous quarter. They would go into an awful lot more detail around things like borrowings, collateral, margin. Whereas with these changes, everyone's going to have to do them. Okay? So when I say that, previously, an annual filer wasn't going into huge detail, they'd only answer Section 1, which is 1A, 1B, and 1C. Now with these changes, the SEC are introducing some of the questions that are currently in Section 2B into Section 1. So even annual filers now, will actually have to go into further detail around borrowings, any collateral, any financing with the large banks. Because as I mentioned earlier, it was something that was being missed for an annual filer, because these questions didn't need to be answered.

There's other things around, when I say more in-depth questions, but also it was very much as at for a number of the questions in the current form. Whereas now with these changes, they're going to be looking for data on a monthly basis within the filing period. So again, if you're filing quarterly, for the quarter one, if we're looking at January to March, you will actually have to report your NAVs and your GAVs on a monthly basis. Similar then, if you're an annual filer, you'll do it for the 12 months. You will have to report your NAVs and GAVs. The difficult thing there for people like private equity funds, they may be... They're quarterly NAVs, so they will still have to have a response in there. So yeah, it's very much more in-depth questions that they're going into.

TaNeka Ray:

Oh, wow. A lot more work.

Cathal Connolly:

And that is, I suppose it's on the tip of everyone's tongue because it is an awful lot more work. So where is the data coming from? Previously, if you were an annual filer, I didn't need to answer these types of questions. I didn't need to go into this detail. Do I have that? Do my providers, my third party providers have that? Do my accounting firms have that? Who is it that actually has this data that we can actually use and complete the filing accurately? Because look, ultimately, nobody wants to get a question from the SEC, so they want to make sure... Now is really the time to be looking into this because everything, before we know it, it's going to be on top of us. It's going to be going live. So preparation is key for all of this.

TaNeka Ray:

So what does all of this mean now for hedge fund and private equity fund managers?

Cathal Connolly:

More work. More work, more review. And again, it's probably really affecting more so the smaller filers. So again, if you were previously an annual filer, your responses were quite minimal. Whereas now, the sections and the questions have actually been moved into Section 1, so everybody's on the hook for it. So there's going to be an awful lot more work for private equity. And again, it's the further in-depth questions that they're really looking at. But yeah, it is very much more work.

TaNeka Ray:

Cathal, thank you for sharing your insight. That concludes today's discussion of amendments to Form PF and best practices interview. Again, my name is TaNeka Ray with EisnerAmper and I welcome you to connect with me and Cathal on LinkedIn. Thank you for watching.