Hedge fund managers appear disinclined to supply their investors with Form PF data although are willing to provide clients with Open Protocol Enabling Risk Aggregation (OPERA), the risk reporting toolkit designed by Albourne Partners.
Some managers have said investors are pushing for complete Form PF disclosure, with 45% of managers telling an upcoming COOConnect survey they had experienced such requests. Despite this, 59% told COOConnect they would not supply the data. Many managers complained the data demanded by regulators was different to the information supplied to investors, and this could prove confusing.
“We do not supply Form PF. We have a significant number of notional derivatives on our book as we trade a considerable number of interest rate swaps. If we gave our investors the data contained in Form PF, it would be a meaningless number and would provide no indicator of risk,” said Eric Vezie, head of risk at Brevan Howard, speaking at the GAIM conference in Monte Carlo.
Patrick Trew, chief risk officer at CQS Asset Management, agreed. “We have no plans to supply the Form PF to investors,” he said.
Manager fears of copycat trading is not the main reason for non-disclosure of Form PF, but rather concern investors could struggle to make sense of the information or be thrown off balance. One example of where confusion might arise could be the Securities and Exchange Commission’s (SEC) definition of Regulatory Assets under Management (RAuM), which incorporates leverage and the notional value of all derivatives contracts into gross AuM, thereby inflating standard AuM.
Nonetheless, some institutional investors are asking for Form PF. “We do ask for Form PF purely to obtain data on hedge funds’ counterparties. Some funds do not always give us periodic updates about their service providers so Form PF could be useful here,” commented David Woodhouse, senior vice president and head of operational due diligence at Permal.
Several institutional investors have told managers they will demand to see Form PF if the collection and collation of the data is charged to the fund. However, investors and regulators both risk information overload with this data, a point made by Vasilos Siokis, chief risk officer at Cheyne Capital. “There is a lot of information out there, and frankly speaking, who will look at it all? Banks provided regulators with data on a regular basis before the crisis and regulators did not look at it,” he said.
The panellists appeared more amenable to providing their investors with OPERA. “Albourne Partners’ OPERA is more suitable for investors and we are seeing increasing demands from clients for it,” commented Christian Szylar, global head of risk and performance at Marshall Wace in London.
OPERA has been praised for consolidating multiple reporting points and being investor friendly. “We were an early supporter of OPERA and within our investor community, OPERA has been welcomed and we are increasingly mentioning it to people. It is an evolution in transparency,” highlighted Trew.
However, some managers have complained that OPERA is another reporting headache, alongside Form PF, the CFTC’s CPO PQR form and AIFMD transparency requirements. Several chief operating officers at hedge funds have bemoaned OPERA complaining they are already subject to a number of regulatory reporting initiatives while the methodology employed by Albourne is also prescriptive and in some cases differs from regulators – again, something which could confuse investors if they demand regulatory reports in addition to OPERA.
Albourne Partners’ chief executive officer Simon Ruddick irked some managers by warning them they faced being relegated from the company’s approved list of hedge funds if they failed to sign up to OPERA. Many acknowledged this no-nonsense approach was a response to the disappointing number of managers participating in the initiative with one industry insider stating just 150 funds had signed up to OPERA despite being launched in 2011.