Hedge Funds

Hedge Funds


The Form specifies that a commodity pool is categorized as a hedge fund for reporting purposes. Under 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?   

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).

A hedge fund is defined generally to be any private fund that has the ability to pay a performance fee to its adviser, borrow in excess of a certain amount, or sell assets short. If I advise a private fund that previously did not meet this definition, but later does meet this definition (because, for example, its fund documents change to include the ability to engage in short selling), must I change how I categorize that fund for reporting purposes and does it affect whether I am a large hedge fund adviser?

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.

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.

For purposes of Form PF (and Form ADV), a hedge fund is defined to include any private fund that may have “gross notional exposure” in excess of twice its net asset value . Does the term “gross notional exposure,” which is undefined, have the same meaning as the defined term “gross notional value?”

Yes