A new era of government reporting by private fund managers, including hedge funds and private equity, is making this a year of deadlines.
New reporting rules from the Securities and Exchange Commission — dictated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 — set several dates for private fund managers to report extensive data about their investment portfolios. The information will be shared with the Financial Stability Oversight Council as it watches for investment activity that could lead to systemic risk in the financial markets. For many managers, it will be their first steps into government reporting.
“This is the new reality for alternative asset managers,” said Samer Ojjeh, a principal with the financial services office of Ernst & Young LLP, New York, in an interview. “It's a very daunting exercise of data gathering and collecting.” As several deadlines approach, “they are realizing how much of a burden it is. They're really anxious.”
The first deadline came March 30, when private fund managers with $150 million or more in assets under management had to register with the SEC. While such fund advisers were previously exempt, many already had registered.
The additional deadlines are triggered by the “Form PF” procedures for private funds, which will have to spend considerably more time gathering information that until now has been held close to the vest.
Hedge fund firms managing at least $1.5 billion and liquidity or money market fund managers with at least $1 billion in assets under management must report quarterly, while private equity managers with more than $2 billion under management have to file annually. All other managers with assets under management above $150 million must file annually.
Managers in all strategies with $5 billion or more under management have a June 15 trigger date for reporting data, which depending on asset size must be done each quarter or fiscal year. Managers with less than $5 billion in AUM have until their first fiscal year or quarter ending on or after Dec. 15. Exempt are advisers exclusively in venture capital funds or funds firms with less than $150 million, and foreign advisers without a U.S. office.
By contrast to the new adviser registration rules, which will help SEC officials set compliance and investigations priorities and whose information will be publicly available, the information from the Form PF reports will be kept confidential, shared only with the FSOC.
One big concern among money managers is the potential for confusion over the level of detail to provide, and whether the firm's presentation of information might be misconstrued as misleading. “Advisers, for the first time, will have to report information that in many cases is … subjective in nature,” Joanne Medero, a managing director at BlackRock Inc., New York, wrote in a 2011 comment letter during Form PF. rulemaking. “They will have to report based on their own interpretations of questions relating to their individual businesses, including investment techniques, portfolio management, use of leverage, collateral practices and other internal operations.”
Another headache, advisers say, is the data gathering itself, which requires more staff time, procedures and technology to collect and process the information, either in-house or outsourced. “It's a quantum leap in the level of complexity of data that needs to be reported. (The SEC) will have to create consistency to compare risks. It's going to be very interesting,” said Mr. Ojjeh of .
Critics of the new reporting rules also question how SEC officials, already stretched thin by Dodd-Frank requirements and other tasks, will be able to analyze this data and compare risks among managers with varying methods of valuing their assets. After all the trouble and expense, private fund managers wonder, how much will be gained?
One silver lining could be removing some of the misperceptions about firms that are often held up as symbols of America's economic imbalance. As one private equity official said, "We are not a cause of systemic risk and we believe that the data collected will confirm that fact."