UBS
Many hedge fund administrators now
understand that the services they provide to their clients extend beyond just the calculation of the net asset value and shareholder services. Brian Burkholder explains.
Regulatory reporting is one of those areas that administrators are being called upon by their clients to assist with. In the wake of the global financial crisis of 2008, the scale of regulatory reporting is increasing and becoming more complex, and while it continues to evolve and develop, one of the hot topics at the moment is Form PF.
In the US, Form PF (private fund) has been introduced by the
Securities and Exchange Commission (SEC), in conjunction with the Commodity Futures Trading Commission (CFTC), and will increase the quantity of information reported by hedge funds in the future. While Form PF will have an impact on both single manager and multi-manager clients, much of the reporting burden will fall to the single manager funds. The Financial Services Authority in the UK has introduced similar voluntary reporting requirements for hedge funds.
Form PF must be filed by investment advisors that are, or are required
to be, registered with the SEC, that manage one or more private funds and have $150 million in private assets under management. The reporting is further broken down so that many investment advisors will be impacted by the large advisor reporting requirement if they manage more than $1.5 billion in regulatory assets. Regulatory assets are defined as gross assets under management, so clients with net assets of $1 billion could be caught if they use leverage of $500 million as part of their investment strategy.
The reporting by large advisors is more extensive and occurs quarterly; for other advisors annual reporting is all that is needed. The first reporting
deadline for Form PF for large advisors with regulatory assets of $5 billion or more is August 29, 2012, based on the June 30 quarter end.
While many clients will not be affected by every section of Form
PF, the overall document is broken down into five sections over a total of 42 pages. It is difficult to provide a concise summary of the information required, but the level of information to be reported by investment advisors will be substantial. An administrator’s clients may be required to disclose detailed information about the assets they have under administration at a very granular level. Calculations such as risk metrics may also be required.
The information contained in Form PF is meant to be confidential
and is to be used to determine how systemic risk—and potential systemic risk—should be assessed in the financial system. The SEC and CFTC may also use Form PF to support examination and enforcement activities. While Form PF is meant to be confidential, it is possible that large institutional investors of a client may want to see the investment advisor’s filings as part of their due diligence activities. Should this occur, the administrator’s role will be even more important, as institutional investors prefer to receive information independently of the investment advisors they are evaluating.
In addition to Form PF, there is the continued roll-out of FATCA
(Foreign Account Tax Compliance Act) by the US Treasury Department and Internal Revenue Service (IRS). While not regulatory reporting per se, FATCA will also have an impact on hedge fund administrators
CAYMAN FUNDS | 2012 41
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