SEC Answers Questions on Form for Advisors With Private Fund Assets

Form PF must be completed by RIAs that manage $150 million or more attributable to private funds

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  • Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
  • Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation.  Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.  

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.

SEC LogoThe 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).

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