Form PF reporting requirements could be eased, says Managed Funds Association

InvestorsLegalOperational RiskRegulation
23 Apr, 2012

The Managed Funds Association (MFA), the US industry body representing hedge funds, has said the Securities and Exchange Commission (SEC) might ease some of the Form PF reporting requirements over time.

“Regulatory bodies have asked for a lot of information from hedge funds. I hope that the reporting requirements for hedge funds as outlined in Form PF, will become less onerous over time, as the rules evolve. Some information might not be as imperative as the SEC had thought initially, and I believe reporting changes will be driven by the marketplace,” said Stuart Kaswell, executive vice president, managing director and general counsel at the MFA in Washington.

Nevertheless, Kaswell and other participants refused to speculate which particular questions from the 40 page plus Form PF document could be omitted.

Form PF, as mandated by Dodd-Frank, will require hedge funds managing northwards of $1.5 billion, to submit extremely detailed data to the SEC every quarter. The SEC will then pass this information over to the Financial Stability Oversight Council (FSOC), the body tasked with monitoring systemic risk.

Data will include information about hedge funds’ exposures by asset class, counterparty risk, leverage, geographical concentration, risk profile, investor details, collateral details, liquidity, strategy coverage and turnover by asset class. Managers could even be required to report other risk measures such as stress test results and Value at Risk (VaR) data.

The MFA remained optimistic regulators will listen to the industry about Form PF concerns – a belief many in Europe must envy presently. “The SEC and Commodity Futures Trading Commission (CFTC) are very good at what they do and they are very engaged with the industry. For example, with Form PF, there are a lot of questions and issues coming from managers. Oftentimes, the SEC will issue an FAQ guideline, which can help managers better understand what regulators want from them,” said Kaswell.

Many market participants fret the new rules could force hedge funds out of business although Kaswell is less apocalyptic.  “The costs our members are going to shoulder are going to go up. The big question is whether or not the barrier to entry is going to become too high. A lot of the regulation is still being implemented and in some cases, there are still question marks about the precise legal definitions. For example, there is no legal definition of a swap yet in the US. Everything is still being developed or in transition so it is impossible to tell how things will pan out,” he highlighted.

Furthermore, Kaswell praised the recent JOBS Act, which requires the SEC to amend Regulation (D) of the 1933 Securities Act, a rule preventing hedge funds from soliciting or advertising in public. The rule change, some have argued, could lead to greater transparency in an industry widely criticised for being opaque. “This is a vast improvement and the JOBS Act is an example of a sensible, intelligent change in regulation,” said Kaswell.