COOConnect Editorial: Interview with Vernon Barback, president and COO at GlobeOp, about Form PF

26 Mar, 2012

The clock is ticking on Form PF. Managers with more than $1.5 billion AuM will be required to file this incredibly detailed form to US regulators by December 2012 while those managing northwards of $5 billion have until just June 2012 to get their books in order. The form, which has to be submitted quarterly or annually 60 days after the end of each reporting period depending on AuM, is by no means straightforward.  The data is in-depth and will be used by the Financial Stability Oversight Council, the body mandated under Dodd-Frank to monitor systemic risk, to do exactly that. COOConnect Editorial speaks to Vernon Barback, president and chief operating officer at GlobeOp about the implications of Form PF.

COO: What are the operational implications for hedge funds in regards to Form PF?

Barback: Hedge funds need to clarify, via their lawyers and accountants, several key pieces of information relative to filing Form PF. They need to identify all of their US registered beneficial owners and their regulatory AuM to determine their exact filing deadlines. There are hundreds and in some cases thousands of data points that hedge funds need to include in Form PF, which are mandated by the Securities and Exchange Commission (SEC). They need to get prepared. The deadlines are creeping up. We are already doing test-runs with managers with $5 billion plus AUM, and mid-sized funds should be preparing for test runs in August and September.

COO: How prepared are managers for Form PF?

Barback: There are some managers who are ahead of curve while others, like some of us with our income tax preparations, are pushing it back to the last minute. Many managers who have a June 2012 filing are at an advanced stage. Managers with a December 2012 deadline probably view it as less imminent. It is likely that most mid-sized firms who need to submit in December 2012 are only just starting to think about the implications of Form PF.

COO: There appears to be confusion about what exactly constitutes regulatory assets under management. Is this still a problem for hedge funds?

Barback: I believe some managers may still be confused about the SEC’s definition of regulatory AuM. This could be a problem if they assume they do not qualify for the asset threshold for June 2012’s submission date, or even December 2012 for that matter. Initially, many funds believed regulatory AuM was the same as the net asset value (NAV), which is not correct. The SEC has since clarified this and stated that regulatory AuM includes all assets on the balance sheet, including derivative positions. Managers need to check they have accounted for all of these when they calculate their regulatory AuM otherwise they run the risk of missing deadlines.

COO: The SEC made some concessions to Form PF reporting requirements in October 2011. Do they go far enough and will they be effective?

Barback: Yes – I do believe they go far enough and they have been well thought out by the SEC. It is important to remember Form PF is there to monitor systemic risks. While hedge funds did not contribute to the crisis, regulators do not want to leave any stones unturned. The SEC listened to feedback to Form PF from the industry and made some sensible changes to the original requirements. For example, they have now given managers 60 days to submit Form PF after the end of each quarter instead of 15 days, which was not practical. Firms with large, complex balance sheets need weeks to finalise their NAV and had they sent information to regulators after 15 days, it would have been inaccurate and not up to an audit quality standard.  The SEC’s decision to push back some deadlines from January 2011 until December 2012 is welcome too – although that might cause some managers to have put Form PF on the backburner.

COO:  Is there a risk some managers are outsourcing too much Form PF work to their administrators or other vendors?

Barback: I would say the opposite is true. If a person is not a tax expert, they will usually appoint a professional to assist them in filing their taxes correctly. This also has merit with Form PF. However, in the case of Form PF there is a risk managers might assume they can get help from a specific vendor and then find the vendor is not ready.

COO: Will investors demand managers hand over the Form PF and is there a risk of copycat trading?

Barback:  Form PF isn’t public. It is a confidential filing. It is up to managers whether they make it public by giving it to their investors. That said, there could be a service opportunity in the future for administrators to generate a sensitive, investor-friendly Form PF which protects the proprietary information of the hedge fund. If our clients ask for this, we would be more than happy to do it. However, fears over copycat trading are overstated because the information is 60 days old, and as we know, a great deal can change in 60 days.