Managers warned on replicating Form PF into AIFMD Annex IV reports
Approximately 60% of the data required for Form PF can be replicated into the AIFMD’s Annex IV reports, although managers have been warned there are a number of nuances between the two documents.
Annex IV reporting will come into play in January 2014 and will necessitate reporting breakdowns of investment portfolios, the notional value of derivatives exposures, leverage ratios, counterparty risk analyses, clearing and custody arrangements and other hard-to-obtain disclosures.
Form PF filers, meanwhile, must collect and collate roughly 2,500 data points and submit this to the Securities and Exchange Commission (SEC) on either a quarterly or annual basis depending on Assets under Management (AuM). Data required includes exposures by asset class, counterparties, geographical concentrations, leverage, risk profiles, details of investors, liquidity terms, strategies, turnover by asset class, stress test results and Value at Risk (VaR).
“Unfortunately it does not really work to take Form PF and drop it into Annex IV. Roughly two thirds of the data could be replicated in some way but there are still differences – for example, the methodology used to calculate leverage,” said Gus Black, partner at Dechert, speaking at Duff & Phelps' annual European Alternative Investments Conference in London.
An institutional investor also attending the event agreed. “Managers cannot simply copy and paste data from Form PF into Annex IV because the formatting is different, so the data needs to be re-grouped. On top of that, the calculations and methodology have subtle variances, as do the definitions of leverage,” he said.
While the risk reporting methodology in Form PF is rigid, it is by no means as prescriptive as that of Annex IV. “Form PF imposes different reporting obligations depending on the size of your firm and the type of strategy you run while Annex IV is a “one size fits all,” and requires the entire template to be populated notwithstanding the size or strategy. Additionally, Form PF allows managers to list assumptions made on any question, or even explain how a particular question may not be applicable to their portfolio. Annex IV has no such provision and is therefore far more prescriptive,” said Cary Goldstein, head of business development at ConceptOne, a New York-based financial advisory and software firm.
AIFMD reporting is proving a challenge for managers. A study by KNEIP in June 2013 revealed 85% of alternative investment managers were unprepared for AIFMD reporting requirements. That same study revealed regulatory reporting was the primary AIFMD concern among 40% of managers.
The problem is compounded as managers will have to supply reports to multiple jurisdictions if they market into a number of EU countries. While AIFMD reports are broadly similar across jurisdictions, differences do exist, namely that data points are in a multi-currency and language format.
Uneven progress has been made towards implementing AIFMD across the EU. A joint study by Ernst & Young and AIMA revealed that while the majority of EU member states have transposed AIFMD into law or have drafted legislation awaiting parliamentary approval, just 12 countries had achieved full legislative transposition. Five countries had made little or no progress towards drafting or finalising the legislation, and four countries had not even issued clarification, the study added.
“We anticipate that Annex IV reports across the EU will broadly use the same template and will not deviate from the European Securities and Markets Authority’s (ESMA) guidance. However, some jurisdictions have yet to issue clarifications on reporting and we are devoid of crystal clear clarifications as to how and when different member states want their Annex IV forms. Because of that, some managers are not giving Annex IV and AIFMD reporting their full attention,” said Gary Kaminsky, managing director and head of global regulatory and compliance at ConceptOne.
