Holistic Medicine for Hedge Funds


A December 2013 survey polled hedge-fund managers as to which regulators posed the greatest challenge for compliance dollar costs and difficulty in satisfying the regulations. Interestingly, North American compliance costs — as a percentage of Assets Under Management (AUM) — were ranked higher than European ones. Among the most burdensome compliance undertakings identified by responders was Form PF preparation. From SEC (Securities and Exchange Commission) and CFTC (Commodities Futures Trading Commission) in the United States to FCA (Financial Conduct Authority) in Europe, the “data chase” is costing hedge funds hundreds of millions of dollars. Recently, new approaches have been formulated for streamlining data collection.

500 Hours for One Form

Perhaps the most extreme example of excessive resource waste is in Form PF compliance. Twenty percent of fund managers reported spending 500 hours to properly prepare that form. However, by leveraging the procedure and cost of Form PF data collection and reporting, the overall resource cost of compliance with other data submission requirements can be largely centralized — and economized.

Leveraging Data Collection

The holistic approach to regulatory compliance assembles data for one form filing process and makes that data available globally for other regulatory filings. By sharing data on an enterprise-wide platform, all reportable data are fed into and dispatched from a centralized compliance station, thus leveraging handling of data sets across several regulatory obligations. Compliance experts have estimated that about one-third of the data so collected can be replicated across all compliance reporting, and in some cases, the benefit is even more advantageous.

The SEC to ANNEX IV Nexus

On October 31, Alternative Investment Fund Managers (AIFMs) filed their Alternative Investment Fund Managers Directive (AIFMD) Annex IV reports. But many managers found that they were able to leverage their Form PF and Form CPO-PQR data filed with the SEC and CFTC respectively and apply the fruits of those data projects to Annex IV compliance. Speaking at a technology conference in London last month, Adam Pacey of M&G Investments emphasized the holistic approach of data collection to the attendees: “Firms can sometimes approach different regulatory driven requirements in a siloed fashion. Common data requirements across different regulations might be one example of where taking more of a holistic approach to the requirements and implementation offers those firms some implementation benefits.”

Assuring Data Alignment

Regulators have cautioned fund managers that the data reported on Forms PF, CPO-PQR and Annex IV must be consistent to avoid red-flagging regulators. According to Gary Kaminsky, a global regulatory and compliance expert: “Regulatory reporting is an exercise in aligning all third-party transparency — all reports must have aligned data. Firms cannot provide disparate data to different regulators and constituents; otherwise they will face unwanted scrutiny.”