The geographical limits of Form PF

The Alternative Investment Fund Managers Directive comes into effect on 22 July 2013, bringing with it new regulatory reporting requirements for managers of alternative funds, including private equity funds.

Managers in the European Economic Area (the EU states, plus Iceland, Lichtenstein and Norway) will file reports with their national regulator.  Managers based outside the EEA, which manage EEA funds or which market non-EEA funds in the EEA, will file reports in each EEA state where funds are marketed.  (Authorization and passporting under the directive may be extended to non-EEA managers after July 2015, and if so, such managers would be permitted to file reports with a single EEA regulator.)  All reporting will use a standard template mandated by the European Commission.

The directive’s reporting requirements and the Commission’s template are part of the wide range of financial stability initiatives adopted in response to the 2008 market crisis by the EU and other regulators around the world, including the US Securities and Exchange Commission (SEC).

Richard Heffner

The SEC’s analogous reporting form, Form PF, was adopted in October 2011 and is currently in use. In developing Form PF, the SEC staff consulted with the UK’s Financial Services Authority (FSA), the European Securities and Markets Authority (ESMA), the International Organization of Securities Commissions (IOCSO) and Hong Kong’s Securities and Futures Commission, to develop a consistent regime for hedge fund reporting.  Although the SEC staff drew on ideas from the FSA’s voluntary hedge fund surveys and ESMA’s draft guidelines under the directive, the final scope and frequency of reporting on Form PF differs in significant respects from the Commission’s reporting template.  

In general, the Commission’s template is less focused than Form PF on reporting by fund type. The Commission’s template has a common set of reporting requirements for all funds, regardless of type, with some questions which may be difficult for non-hedge funds to answer. As a consequence, reporting by non-hedge funds, including private equity funds, will take a very different form in the Commission’s template than in Form PF.  Accordingly, private equity fund managers already filing reports on Form PF may find they can make only limited use of Form PF data in their regulatory reporting under the directive.

The Commission’s reporting template is organized in six parts corresponding to specific reporting obligations under the directive. The application of each part varies depending primarily upon whether the manager qualifies under an exemption for “small” managers and whether it is an EEA or non-EEA

manager. The “small” exemptions cover managers having “total” AUM (on a gross basis) of funds within the directive not exceeding:  (1) €100 million, including assets acquired through leverage, or (2) €500 million, but only if the funds are unleveraged and provide no redemption rights within five years of initial investment. The second of these will likely be most used by private equity managers. Managers relying on either exemption must register with and provide ongoing reports to the applicable EEA regulator. Such “small” managers need only complete two parts of the Commission’s reporting template, those seeking relatively basic information on the manager and its alternative funds. They are not required to complete a further part, applicable to all other managers, which seeks more detailed information on each of the manager’s EEA alternative funds and each non-EEA fund marketed in the EEA. For private equity funds, this more detailed part requires disclosure of investee companies controlled by the fund, which is relevant to the directive’s regulation of managers of funds which acquire control of non-listed companies.

The reporting frequency will depend on a manager’s total AUM of alternative funds. In general, managers with total AUM of €1 billion or less (but above the “small” manager thresholds) report half-yearly, and managers with total AUM of more than €1 billion report quarterly.  There is separate annual reporting for each unleveraged fund which invests in non-listed companies to acquire control.

The Commission issued its reporting template with limited explanation, and there are many points of uncertainly.  For example, it is unclear how the annual reporting frequency for unleveraged funds controlling non-listed companies ties in with the general half-yearly and quarterly reporting requirements. Some of these uncertainties may be covered in ESMA guidelines on the template, upon which ESMA is expected to consult soon.

Richard Heffner is a financial services lawyer in the London office of Dechert, a law firm.