As federal regulators hunt for systemic risk to financial markets in new reports required of private fund managers, institutional investors are likely to start demanding some of the same information, industry analysts say.
This summer starts a new era of disclosure for managers of hedge funds and private equity, which for the first time have to report closely held information to the Securities and Exchange Commission in the new “Form PF.” The information will be shared with the Financial Stability Oversight Council as it checks for systemic risk in financial markets.
Hedge fund firms managing at least $1.5 billion must report quarterly. Private equity managers with more than $2 billion under management and all others with AUM of more than $150 million must file annually.
Managers exclusively in venture capital funds or firms with less than $150 million, and foreign managers without a U.S. corporate office, are exempt.
“Investors are well aware (of), and many investors have requested to see,” the submitted reports, said Ron Papanek, executive director, alternative investments, at MSCI Inc., New York, a provider of portfolio risk and performance analytics. “It offers useful information like stress testing and sensitivity to global risk factors.” He wouldn't identify the investors.
Mr. Papanek predicts investor demand for such information will result in broader dissemination, once managers and regulators get comfortable with the new reporting.
Gurvinder Singh is CEO of Indus Valley Partners, a New York portfolio management technology firm, which is helping its alternative asset manager clients prepare for Form PF. He is already seeing funds of funds asking for similar data, and he expects sovereign wealth fund and endowment clients to follow.
“If they are smart, they are going to be asking for it,” said Mr. Singh, whose clients include 15 of the top 25 largest global hedge funds representing $400 billion in assets under management.
“This could be a positive for firms that don't spend enough time on risk management and risk metrics,” said Jim Volk, chief accounting and compliance officer with SEI Investments Co.'s investment manager services division in Oaks, Pa.
Larger firms have reassigned staff to get ready, while many smaller firms are still figuring out whether to tackle the data gathering and reporting themselves, Mr. Volk said. Regardless of which path is taken, “people are going to have to change their habits.”
Mr. Singh agrees the new reporting demands could help different divisions of a firm think more holistically. “It does force them to collaborate, perhaps for the first time.”
SEC officials are also figuring out how they will handle what Karen Barr, general counsel of the Investment Adviser Association, Washington, calls “a treasure trove of information ... that they didn't have before.”