Form PF Update

On October 26, 2011, the Securities and Exchange Commission (SEC) issued its final rule on Form PF (hereinafter, “the final rule”) as part of the Dodd-Frank Act. The Commodity Futures Trading Commission (CFTC) approved its portion of the rule shortly thereafter. In part, the final rule requires registered investment advisers to private equity funds to report information for use by the Financial Stability Oversight Council (FSOC) in monitoring risks to the U.S. financial system.

The final rule includes some important changes from the earlier proposed rule issued by the SEC and CFTC in January 2011. Most of the SEC’s favorable changes to Form PF regarding private equity are in response to recommendations made by the PEGCC‘s comment letter and several meetings with SEC commissioners and staff.

Perhaps the most noteworthy change in the final rule is that the SEC will only require private equity fund advisers (irrespective of AUM size over $150 million) to file Form PF annually within 120 days of the end of the fiscal year. The earlier proposed rule would have required large private equity fund advisers to file quarterly reports, which encompassed monthly valuations of illiquid assets, within 15 days of the end of each quarter. The PEGCC successfully argued that such an approach would not benefit the regulators and would impose undue burdens on PE investment advisers.

The SEC also adjusted the definition of a “large private fund adviser” in the private equity context, increasing the threshold from $1 billion in AUM in the proposed draft, to $2 billion in AUM in the final draft. As advocated by the PEGCC, all PE firms only need to test the large PE fund adviser threshold annually.

The final rule also removed several requirements that would have been unworkable and unnecessary for private equity investment advisers, including a requirement that advisers provide breakdowns of maturities of portfolio company borrowings.

Investment advisers to both hedge funds and liquidity funds will also have more reporting requirements than private equity investment advisers as part of the final rule. During the open meeting, Chairman Schapiro recognized the fact that PE firms have less potential for systemic risk compared to hedge funds and liquidity funds, conceding a point raised by the PEGCC in comment letters and meetings.

While the final rule includes several helpful revisions that the PEGCC encouraged that will make the Form PF process more efficient and less burdensome for private equity investment advisers, the final Form PF will still impose significant burdens on private equity investment advisers.

Upon the release of the final rule, Interim President and CEO of the PEGCC, Steve Judge, thanked the SEC “for taking a more realistic approach to the final rule requiring investment advisers to file a new Form PF.”

The PEGCC will continue to engage on this topic with the SEC and others as the rule is fully implemented.