AIFMs outsourcing Annex IV to fund admins could be forced to disclose data to investors

15 Oct, 2014

Firms outsourcing the compilation and submission of their Annex IV to fund administrators could find themselves under pressure to disclose the document to investors if administration costs are borne by the fund.

A survey conducted by BNY Mellon in conjunction with FTI Consulting on the eve of the Alternative Investment Fund Managers Directive’s (AIFMD) implementation deadline found 13 per-cent of managers would pass the costs of Annex IV onto the fund, while 29% said they would offset some of the costs to the fund.

However, a number of fund administrators provide a full service product whereby they collect all of the data for Annex IV on behalf of their clients, and in some cases submit it to local regulators where permitted. If administration is a fund expense, there is a possibility investors could demand a copy of the Annex IV.

“It is an interesting point and there is some sympathy for investors having access to reports that they are paying for through fund expenses rather than through the management fee. But in regards to Annex IV, I have not yet heard of any investors demanding copies yet,” said Sean Donovan Smith, partner at K&L Gates in London.

One consultant, speaking on background, agreed. “As the investor is paying for administration and by default the production of Annex IV, some may feel they have a right to see Annex IV, which puts the manager in a difficult position. This could be an issue when Annex IV filing begins in earnest,” he said.

The challenge would be compounded if the administrator handled only a part of the Annex IV work. “When Form PF emerged, we saw a lot of fund managers retaining control of some aspects of the data compilation process, and outsourcing other elements to the fund administrator. Some elements were paid for out of the management fee, and others the fund. But we did not hear of investors asking for Form PF though, and I suspect this will be the case for Annex IV,” said Ronan Daly, chairman at Centaur Fund Services in Dublin.

Annex IV, which consists of 301 data fields to populate, requires managers to provide information on instruments traded, borrowings, exposures, stress test results and leverage. Much of this data is sensitive and managers may feel reluctant to distribute it to clients. “When managers provide regulators with Annex IV, it is confidential, and not meant to be disclosed to anyone including investors. Many managers simply will not want to make public sensitive data about their AIFs,” said Donovan Smith.

The majority of firms (74%) said regulatory reporting through Annex IV would be the biggest one-off cost, followed by risk and compliance reporting where 58% of respondents expected to incur significant initial costs and 71% expected on-going costs.  A BNY Mellon survey in 2013 estimated the initial AIFMD set-up costs would be between $300,000 and $1 million for the average manager.  

There was similar debate in the US when Form PF was first introduced. A number of institutional investors made it no secret that they would like to be able to view the Form PF if its production was expensed to the fund. Most managers though said they did not receive many, if any, requests for the document.



Annex IVAIFMDoutsourcingForm PFCentaurK&L GatesBNY Mellon