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Compliance August 24, 2012
Invaluable Data is Form PF Advantage
Form PF is a challenge, but it will provide registered investment advisers with detailed—and marketable—portfolio insight, Thomson Reuters said in a white paper.
Reported by Lee Barney
Certainly, the annual and quarterly reporting requirements of Form PF are a major hurdle for the hedge, private equity and liquidity funds that it impacts, Thomson Reuters said in its report, “The Trending Now Series: Form PF.” As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities and Exchange Commission (SEC) and Commodities Futures Trading Commission (CFTC) enacted the Form PF requirements in October 2011, with the aim of obtaining more data on fund holdings and risk exposure.
“To meet their Form PF obligations, advisers will have to provide regulators with an unprecedented assortment of information on either a quarterly or annual basis, depending on the size of their funds,” said Jayme Fagas, head of evaluated pricing at Thomson Reuters. “This has profound operational and cultural implications for the private fund adviser arena, since for the first time the market will be subject to consistent levels of transparency.”
These funds will have to submit extensive information on their operations and strategies in the private funds they manage, such as their positions and cross-holdings, or exposure. At the heart of Form PF is discerning a fund’s true net asset value. For fixed income holdings, for instance, large hedge fund advisers will have to list the duration, weighted average tenor, or 10-year bond equivalent for their fixed income holdings. They will have to detail the value of their collateral held with counterparties, and other collateral management practices. The SEC and CFTC also want to know the value of hedge funds’ derivatives positions, including the net mark-to-market value of uncleared positions.While the principal aim of these reporting requirements is for regulators and the government to have a better handle on oversight of these funds and any potential systemic or other risk, investors will inevitably be keenly interested in the data, Fagas said. “With the right approach to Form PF adoption, firms have an opportunity to promote their marketability,” Fagas said. “Advisers that institute a robust reporting service—and use that data to enhance their risk management and performance capabilities—will be best-placed to improve their investor relationships and attract more inflows.”