The staff of the Division of Investment Management has prepared the following responses to questions related to Form PF and expects to update this document from time to time to include responses to additional questions. These responses represent the views of the staff of the Division of Investment Management. They are not a rule, regulation, or statement of the Commission, and the Commission has neither approved nor disapproved this information. A paper version of Form PF as amended in Form PF; Event Reporting for Large Hedge Fund Advisers and Private Equity Fund Advisers; Requirements for Large Private Equity Fund Adviser Reporting (May 3, 2023) [88 FR 38146 (June 12, 2023)] can be found at: https://www.sec.gov/files/formpf.pdf A reference copy of Form PF prior to the amendments adopted by the Commission in 2023 can be found at: https://www.sec.gov/files/formpf-legacy.pdf.

We have upgraded the Private Fund Reporting Depository to allow filers to add a relying adviser or SPV as a related person on Form PF in Question 1(b). Filers may now check a box (or use a special tag in an XML submission) indicating that the listed adviser is a relying adviser or SPV on the Form PF. (Updated November 20, 2012)

Yes, the categorization of a private fund as a hedge fund may change from reporting period to reporting period, which in turn may affect whether you are a large hedge fund adviser with respect to a particular reporting period. With respect to any fiscal quarter, a private fund should be categorized as a hedge fund if it met the definition of a hedge fund as of the last day of any month in the fiscal quarter immediately preceding your most recently completed fiscal quarter. See Instruction 3. See also definition of qualifying hedge fund.

For example, you are an adviser with a December 31 fiscal year end whose only client is a private fund with $1.6 billion in assets that does not and did not previously meet the definition of a hedge fund; however, on July 18, the characteristics of the private fund change such that going forward it meets the definition of a hedge fund (and also a qualifying hedge fund). In this instance, for the fiscal quarters ending March 31, June 30, and September 30, you would not be a large hedge fund adviser with a quarterly filing obligation and the private fund would not be a qualifying hedge fund for reporting purposes. In accordance with Instruction 3, at the beginning of a fiscal quarter, you would determine whether you have a quarterly hedge fund reporting obligation with respect to that fiscal quarter by looking back to the immediately preceding fiscal quarter. For example, for purposes of your third quarter ending September 30, at the beginning of that quarter on July 1, you would look back to the last day of the month for April, May, and June to determine if the private fund was a hedge fund. Similarly, in accordance with the qualifying hedge fund definition, this private fund would not be a qualifying hedge fund for reporting purposes for the quarter ending March 31, June 30, and September 30.

You would, however, be a large hedge fund adviser subject to a quarterly filing obligation with respect to your fourth fiscal quarter ending December 31 because the private fund meets the definition of a hedge fund on July 31 (i.e., the last day of any month in the third quarter) and you have over $1.5 billion in hedge fund assets under management on that date. (Posted June 8, 2012)

No. In adopting the Form, the Commission considered, but did not accept, commenters’ arguments that the leverage and shorting characteristics in the definition of “hedge fund” should focus on actual or contemplated use, rather than potential use. See Investment Advisers Act Release No. 3308, text accompanying footnote 78. However, if the private fund you advise is represented to investors as a type of fund other than a hedge fund (i.e., as a private equity fund, real estate fund or venture capital fund), you may, and the staff recommends that you do, include a note in Question 4 indicating the category of private fund that you believe better describes the fund and indicate why the reporting fund meets the definition of a hedge fund. (Updated February 12, 2014)

Yes. To determine whether you meet any reporting threshold as a result of Instruction 5, (i) first you should attribute to yourself any private funds and parallel managed accounts advised by a related person that is not separately operated and (ii) then you may subtract from the total amount any aggregated parallel managed accounts that are not dependent parallel managed accounts.

For example, assume you advise Hedge Fund ABC with assets of $600 million and your related person that is not separately operated advises Hedge Fund XYZ with assets of $300 million and Managed Account 1 with assets of $800 million.

When determining your assets under management for determining whether you meet any reporting threshold, you would first attribute to yourself all of these assets for a total of $1.7 billion. Next, you would determine whether the Hedge Funds or Managed Account are parallel and, if so, subtract the Managed Account if it is not a dependent parallel managed account.

If Hedge Fund ABC and Hedge Fund XYZ pursue substantially similar investment objectives and strategies and maintain substantially the same positions as one another and Managed Account 1, then Managed Account 1 is a dependent parallel managed account of the parallel fund structure of Hedge Fund ABC and Hedge Fund XYZ. This is because the assets of Managed Account 1 ($800 million) are less than the combined assets of the parallel fund structure ($900 million). As a result, you would be a large hedge fund adviser with $1.7 billion of assets under management attributable to hedge funds.

If, however, Hedge Fund XYZ is not a parallel fund of Hedge Fund ABC, but Managed Account 1 is a parallel managed account with respect to Hedge Fund ABC, then Managed Account 1 is not a dependent parallel managed account of either Hedge Fund ABC or Hedge Fund XYZ. This is because the assets in Managed Account 1 ($800 million) are greater than Hedge Fund ABC ($600 million). As a result, you would not be a large hedge fund adviser because you would only have $900 million assets under management attributable to hedge funds. (Posted June 8, 2012)

For example, when determining whether to include short positions, the short position should be included when it is an asset on the balance sheet in accordance with the applicable accounting standard. Typically, a short sale will be recorded as a short sale liability (because the fund has an obligation to replace the security) together with an asset for the proceeds received or due from the counterparty (e.g., cash received or due from a broker). In that case, the short sale liability would neither be included as an asset nor deducted from assets in the calculation of “gross asset value,” although the proceeds received would be included in “gross asset value.” However, if the fund takes a short position using a derivative, the derivative itself may have a positive fair value and be recorded as an asset. In this case, the short position would be included as an asset in the calculation of “gross asset value.” See Investment Advisers Act Release No. 3221, footnote 83. (Posted March 8, 2013)

In determining the value of a borrowing that includes selling a security short, “value” means the value that is reported internally and to current and prospective investors of the fund that is selling the security short. See Instruction 15.

For example, assume on the first data reporting date a fund borrows $100 from its prime broker to purchase $100 worth of Security A and borrows $50 worth of Security B from its prime broker to sell short, and then, on the second data reporting date, Security A is marked to $120, Security B is marked to $60, and the fund posts to the prime broker $8 in cash collateral. For purposes of calculating the value of the fund’s borrowings for Question 12 and 43, the fund’s borrowings on the first data reporting date would be $150, which consists of the $100 borrowed from the prime broker to purchase Security A and $50 from the short sale of Security B. With respect to the second data reporting date , the value of the fund’s borrowings would be $160, which consists of the $100 from the purchase of Security A and the $60 from the short sale of Security B and excludes the $8 collateral pledged by the fund in accordance with the instructions to Questions 12 and 43, which require that a fund not net out amounts that the fund loans to creditors or the value of collateral pledged to creditors . (Posted July 19, 2012)

No. You are not required to complete Question 12 for any reporting fund with respect to which you are answering Question 43 in Section 2b. If you answer Question 43 with respect to a reporting fund, you should leave each part of Question 12 blank. (Posted February 12, 2014)

No. You are not required to complete Question 13 for any reporting fund with respect to which you are answering Question 44 in Section 2b. If you answer Question 44 with respect to a reporting fund, you should leave each part of Question 13 blank. (Posted February 12, 2014)

Questions 22 and 23 focus on a fund’s counterparty credit exposure and the instructions to these questions state that you should not take into account any margin posted by or to the counterparty. As a result, you should report the following for each type of transaction identified:

• Securities lending – the current market value of the securities the fund has lent to the counterparty in Question 22. You do not include any collateral that it has received from the counterparty;
  
• Short transactions – the current market value of the security that the fund has sold short in Question 23(see Q.12.2 above for more details). You do not include any cash proceeds received as a result of the transaction;
  
• Reverse repurchase agreements – the amount of cash received from the counterparty in Question 23. You do not include the amount of any collateral posted to the counterparty;
  
• Repurchase agreements – the amount of cash lent to the counterparty in Question 22. You do not include the amount of any collateral posted by the counterparty;
  
• Non-cleared derivatives transactions with an unrealized gain – the amount of the unrealized gain on the transaction in Question 22. You exclude the amount of any collateral posted by the counterparty or the fund; and
  
• Non-cleared derivatives transactions with an unrealized loss – the amount of the unrealized loss on the transaction in Question 23. You exclude the amount of any collateral posted by the counterparty or the fund.

(Posted July 19, 2012)

For calculating responses for Questions 22 and 23, you should not include amounts attributable to either initial margin or variation margin. You would, however, include initial margin and variation margin as appropriate for purposes of responding to Questions 36 and 37, which are based on the counterparties identified in Questions 22 and 23, respectively, and must be completed by large hedge fund advisers for each qualifying hedge fund.

For example, assume a fund you manage has entered into a derivative position with a counterparty with whom you have an ISDA agreement in place and the following sequence of events occurs: (i) the fund posts $1 million of initial margin to the counterparty; (ii) the fund incurs a $400,000 unrealized gain on the derivative position; and (iii) the fund then receives $200,000 of variation margin from the counterparty. For purposes of Question 22, you should report the $400,000 unrealized gain and disregard the collateral. For purposes of Question 23, you would not report any amount for this counterparty because the fund has a mark-to-market gain. If you are a large private fund adviser and the fund is a qualifying hedge fund required to complete Section 2b, you would report that the fund has received $200,000 in Question 36 because the counterparty paid $200,000 to the fund. You would not, however be required to report any amount in Question 37 because the counterparty was not listed in Question 23. (Posted July 19, 2012)

For purposes of Question 24, the transaction would be classified as a derivative and therefore included in response to Questions 24(b) and 24(c). For purposes of Question 24(b), because the transaction was traded on an exchange , the transaction would be included under the sub-heading “On a regulated exchange or swap execution facility . ” In addition, because the transaction was cleared through the exchange, for purposes of Question 24(c), it would be included under the sub-heading “Cleared by a CCP.”

Question 39, however, asks whether the reporting fund “directly” cleared any transactions through a CCP. Because the fund is not a clearing member and it did not directly clear through the CCP, you would respond “No” to Question 39 if this is the reporting fund’s only derivative transaction. (Posted June 29, 2012)

In determining the trade volume percentage of derivatives trades for purposes of Questions 24(b) and 24(c), you should use the weighted-average of the notional amount of the aggregate derivatives transactions (except for options, in which case you would use the delta adjusted notional value, and interest rate derivatives, in which case you would use the 10-year bond equivalent) entered into by the fund during the reporting period. For example, assume the reporting fund only entered into the following three trades during the reporting period: (i) purchased contracts of gold on the futures exchange worth $50,000, (ii) entered into an over-the-counter interest rate swap that was cleared by a CCP with a 10-year bond equivalent of $1,000,000, and (iii) purchased an over-the-counter call option that was not cleared by a CCP with a delta equivalent of $500,000. You would compute the fund’s trade volume as follows:

1. For Question 24(b), because the futures transaction was the only transaction that was traded on a regulated exchange or swap execution facility, the fund should report 3% ($50,000/$1,550,000) on the first line and 97% ($1,500,000/$1,550,000) on the second line.
   
2. For Question 24(c), because the futures transaction and the interest rate swap were cleared by a CCP, the fund should report 68% ($1,050,000/$1,550,000) on the first line and 32% ($500,000/$1,550,000) on the second line. (Posted March 8, 2013)

Question 32 asks for the percentage by value of the reporting fund's positions that may be liquidated within specified time periods. What does the term "value" mean for purposes of Question 32?

Question 44 requires you to report the aggregate “value” of all derivatives positions. Value is defined in Instruction 15 and requires that the fund report the gross notional value of its derivative positions without netting across positions. Instruction 15 defines “positions” and requires advisers to determine whether a set of legal and contractual rights constitutes a single “position” in a manner consistent with the fund’s internal recordkeeping and risk management procedures. In accordance with this Instruction, you may only net across your positions if doing so is consistent with your internal recordkeeping and risk management procedures, regardless of whether your ISDA agreement with the swap dealer allows netting.

Further in reporting the aggregate value of all derivatives positions in Question 44, you should not include any closed-out out positions, if those positions were closed out with the same counterparty and result in no credit or market exposure to the fund. (Posted July 19, 2012)

No. You should report the absolute value of outstanding derivatives position. (Posted March 8, 2013)

Modified: 12/11/2023