More On Legal & Compliancefrom The Advisor's Professional Library
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
The Securities and Exchange (SEC) on June 8 posted responses to frequently asked questions regarding the implementation of Rule 204(b)-1 and the new Form PF under the Investment Advisers Act of 1940.
The form must be completed by registered investment advisors that manage $150 million or more in assets attributable to private funds. The FAQs cover issues relating to the categorization of hedge funds, liquidity funds and private equity funds under the Rule, as well as aggregation of assets principles and fund of funds reporting issues.
For instance, the Q&A regarding hedge funds is as follows:
Q: The form specifies that a commodity pool is categorized as a hedge fund for reporting purposes. Under Commodity Futures Trading Commission (CFTC) interpretations, a private fund that holds a single commodity interest position may be a commodity pool. Am I required to treat a private fund as a commodity pool if such private fund’s commodity interest positions are de minimis?
A: You should not categorize a private fund as a commodity pool for reporting purposes if the private fund’s commodity interest positions satisfy either of the de minimis tests in Regulation 4.13(a)(3)(ii) issued by the CFTC. Accordingly, you would only have to categorize such a private fund as a hedge fund if it otherwise meets the definition of a hedge fund (i.e., it may charge a performance fee, employ large amounts of leverage, or sell assets short).