August 24, 2012
--- 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. ---
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.”
Lee Barney