Key Takeaways:
- In 2023, the SEC adopted amendments to Form PF, requiring large hedge fund advisers with at least $1.5 billion in hedge fund assets under management to file a current report no later than 72 hours after an "operations event."
- An "operations event" occurs when the fund or its adviser experiences significant disruption or degradation of its critical operations (i.e., investment, trading, valuation, reporting and risk management functions) due to system or software failure, among other things.
- If you are a "large hedge fund adviser" and the CrowdStrike computer failures disrupted the critical operations of a qualifying hedge fund you manage in the ways described above, you are likely required to file a Form PF report within 72 hours of experiencing this "operations event."
The CrowdStrike computer failures that swept the globe on Friday, July 18, 2024, and persisted through the weekend may have impacted fund advisers relying on the Windows system, possibly triggering an "operations event" that requires filing a current report under Form PF for certain SEC-registered investment advisers.
In May 2023, the Securities and Exchange Commission (the "SEC") adopted amendments to Form PF, requiring large hedge fund advisers (defined by the SEC as firms with at least $1.5 billion in hedge fund assets under management) to file a current report no later than 72 hours after an "operations event" involving a qualifying fund1.
Under Item G of Form PF, an "operations event" includes a significant disruption or degradation of the reporting fund's critical operations, whether as a result of an event at a service provider to the reporting fund, the reporting fund itself, or the adviser. For this purpose, "critical operations" means operations necessary for: (i) the investment, trading, valuation, reporting and risk management of the reporting fund; or (ii) the operation of the reporting fund in accordance with the Federal securities laws and regulations. In an Adopting Release, the SEC emphasized that a situation would qualify as an "operations event" if, as a result of such a situation, the adviser or fund is unable to perform critical operations because its trading systems, operations or software are unavailable. The Adopting Release highlighted the SEC's focus on identifying systemic risks that may negatively impact hedge fund investors.
If you are a large hedge fund adviser affected by the CrowdStrike outage and this disruption has impacted your operations (e.g., downtimes involving critical infrastructure, such as order management systems or live feeds relevant for trading, pricing or valuation), you may have an obligation to file a current event report as soon as possible.
Footnote
1. A qualifying hedge fund is defined in Form PF as "any hedge fund that has a net asset value (individually or in combination with any feeder funds, parallel funds and/or dependent parallel managed accounts) of at least $500 million as of the last day of any month in the fiscal quarter immediately preceding your most recently completed fiscal quarter."
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