220-ICP Assignment 4-Joseph Schwab Consultant Project Report for Client Form PF Rules of Submission, Required Information, and Revamping Database Infrastructures Consultant Report for MIO Inc. i. Executive Summary: The Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) adopted Rule 204(b)-1 under the Investment Advisor Act of 1940, which implemented Sections of the Dodd-Frank Act, which requires certain SEC registered investment advisors to file Form PF periodically. The information detailed in Form PF covers certain information about the private funds that they manage (Price waterhouse Cooper Regulatory, 2011, p. 1). As Jeff Blumberg states the amount of information you have to disclose, how many times a year you have to file, and by when you have to file depends on the advisor type and the amount of assets under management (AUM) (Blumberg, 2012, p.1). With regards to compiling all the required databases it is highly suggested that new processes and data management platforms be used to cumulate data from multiple info sources across a large variety of informational systems and from multiple counterparties (Securities and Fund Services Prime Finance, 2012, p. 8). Three types of private fund advisers (Price waterhouse Cooper Regulatory, 2011, p. 4-5). 1. Hedge fund advisors 2. Liquidity fund advisors 3. Private equity fund advisors Large Liquidity Fund Advisors have a minimum of 1 billion dollars in AUM (SIFMA, n.d. para. 8). Advisors also has to take some non-private fund assets under consideration when evaluating of whether or not it meets the 150 million dollars in AUM for reporting Form PF and if it will be classified as a large private fund advisor for purposes of Form PF. (Brody, 2012, para. 9). Form PF drafts will only be kept for a maximum of 180 days (FINRA, 2014, para. 2). Large liquidity fund advisors must file within 15 days of the end of each calendar quarter (Edward Wildman Palmer LLP, 2011, para. 11). The filing fee for Form PF is 150 dollars for each quarterly or annual filing. Form PF has four sections (Blumberg, 2013, p.2). o Section 1 (Blumberg, 2012, p.2). Section one must be filled out by any advisor required to fill out Form PF. Vast majority of advisors who file Form PF will complete only section 1.
Section 1a identifies information about your firm, a breakdown of the AUM, net assets, and the types of private funds your firm oversees Section 1b detailed reporting about each of the private funds you manage (such as gross and net asset value), assets in parallel managed accounts, information on leverage levels, counterparties, valuation of assets using FAS 157 type asset classification, information on investor types and investment performance. Section 1c covers investment strategy, trading levels, identity of significant counterparties, credit risk, and information on trading and clearing. o Section 3 (Blumberg, 2012, p.3). Liquidity fund advisors with an AUM of at least 1 billion dollars must complete section 3. They must account info on the types of assets each of their portfolios, info regarding risk and the extent to which the fund has a policy of complying with the Investment Company s Act Rule 2a-7 relating to registered money market funds. Database infrastructures will need to be rebuilt to support the new reporting requirements for Form PF (Securities and Fund Services Prime Finance, 2012, p. 8). Data management capabilities need to be expanded to include large receipts of data (Securities and Fund Services Prime Finance, 2012, p. 8). In the [PF] ecosystem, there is no single source system to facilitate all of the [info] that need to be reported on Form PF (Securities and Fund Services Prime Finance, 2012, p. 8). The Private Fund Reporting Depository (PFRD) is an electronic filing system that aids investment advisers reporting of private funds through Form PF (FINRA, 2014, para. 1). ii. Discussion The purpose of this report is to provide you and the IT department with the proper information about Form PF regarding, rules of regulation, submission and required information to fill out Form PF. Also I provided information about how to go about changing the infrastructure of your databases so that they are able to handle the massive amounts of data that is required to fill out Form PF, since you are working on an automated filing process for from PF. MIO s approach in this core portfolio provides a highly diversified pool of focused, primarily liquid alternative investment strategies (MIO Partners Inc. n.d. para. 2). This means that your firms private fund advisors specialize in liquidity funds. They should most certainly take non-private funds into consideration when evaluating whether or not they meet the 150 million dollars in AUM minimum for
reporting Form PF and which section they will be required to fill out (Brody, 2012, para. 9). Since your firm files Form PF quarterly (like you informed me) this means that your advisors meet the minimum requirement of 1 billion dollars of AUM and are required to submit Form PF quarterly within 15 days of the end of each fiscal quarter (Edward Wildman Palmer LLP, 2011, para. 11). Your firm s advisors will be required to fill out the first section of Form PF as all advisors that fill out Form PF must complete this section. This section of Form PF requires the following information: Name, total net assets [and] the amount of those assets attributable to certain types of private funds; size of derivatives positions; funds borrowing; information about investor base; performance information (SIFMA, n.d. para. 5). Your advisors will also be required to fill out section 3 of Form PF. All investment advisors that manage liquidity funds with an AUM of at least 1 billion dollars must do so (Blumberg, 2012, p. 3). They will be required to provide the following information: NAV per share, weighted average maturity/life; daily/weekly liquid assets; positions that exceed 5 [percent] of the fund s NAV, securities and unsecured borrowing; liquidity; investor base (SIFMA, n.d. para. 9). Some things you should be aware of when working on your project of creating an automated filing system for Form PF is that your system should be compatible with The Private Fund Reporting Depository (PFRD). PFRD is an electronic filing system that aids investment advisers with reporting of private funds through Form PF (FINRA, 2014, para. 1). Securities and Fund Services Prime Finance (2012) states, infrastructures will need to be built out to support the new reporting requirements stipulated for Form PF. (p. 8) Not only should you be working on creating an automated filing system for Form PF you should also consider revamping your database infrastructures to handle the vast amount of data that must be stipulated for Form PF. Another very valid and important point to keep in mind that was brought up by the Securities and Fund Services Prime Finance (2012), is that new processes and data management platforms are going to be required because data is going to have to be accumulated from multiple counterparties, and across many complex information sources (p.8). [These] complex fund structures [have] feeders, blockers, Alternative Investment Vehicles (AIVs) and Special Purpose Vehicles (SPVs) (Securities and Fund Services Prime Finance, 2012, p. 8). The technology that the complex fund structures utilize should be made aware of to your team so that your system can be compatible. Keeping these facts in mind will help you develop a stronger more efficient system. You should also be aware that in order to properly compile the information that is necessary to complete Form PF, your firm might have to expand their data management capabilities. Securities and Fund Services Prime Finance (2012) states, [you] may need to expand [your] data management capabilities to include receipt of data from service providers, including fund administrators, prime brokers, risk providers, custodians, Portfolio Companies and other trading counter parties. (p. 8) These are some of the new data types that you will have to be able to obtain and make well-suited with your automated filing system for
Form PF. This will require your automated filing system to be able to scan multiple databases and a large variety of external information sources. I have also discovered a third party application that is being used by many financial firms to consolidate data from a large array of information systems. NorthPoint Financial's Portfolio Management System (PMS) consolidates information from multiple systems into a single portfolio management dashboard to give you real-time ticking views of positions, exposures, PnL, performance, risk, and other analytics (NorthPoint Financial. n.d. para. 1). This third party application will save you time from creating your own informational management system and help keep most of the data confined to one database. This way you can create an auto filing system that only has to scan one database instead of many counterparties and a large variety of third party information systems. This will save you the hassle of making your auto filing system compatible with a larger assortment of information systems. To ensure the NorthPoint Financials Information communication technology is prominent in the financial services industry I have determined a list of their clientele that utilize their Portfolio Management System to keep accounts of their financial data. Some of their high profile clients include, Barclays Capital, BlackStone Group, Credit Suisse, Perry Capital, Royal Bank of Scotland and many other high profile firms in the financial industry (NorthPoint Financial n.d. para 4). This information ensures that this third party application is highly effective in managing financial record on one database instead of a large variety of data sources. This should be more than an ample amount research to help you and your team develop an effective automotive filing system for Form PF. The validity of the research is backed by many sources, which are all prominent figures in the financial industry ranging from high profile firms to government regulatory organizations. I am confident that my research will help your IT department and you develop and establish the most effective automotive filing system and help reduce the extent of your project. iii. Bibliography Securities and Fund Services Prime Finance. (2012, February). Form PF The Impact on Private Fund Advisers. Retrieved from http://icg.citi.com/sfs/docs/impact_on_private_fund.pdf This article talks about the impact Form PF will have on advisors and their forms. Some very important points this article made were about how firms infrastructures will have to be built out to support the new reporting requirements. Blumberg, J. (2012, February). Are You Required to Submit From PF? Retrieved from http://woodfieldllc.com/images/february%202012%20are%20you%20re quired%20to%20submit%20form%20pf%20-%20reprint.pdf This newsletter by Jeff Blumberg talks about who has to file Form PF and by what dates they must file. It also includes info on the
type of information that is required to be filled out based on the type of advisor you are and their portfolios AUM. The most important info retrieved from this article where about the type of information that is required to be filled out in each section of Form PF and which types of advisors need to fill it out. Securities Industry and Financial Markets Association (SIFMA) (n.d.). Reporting by Investment Advisers on Form PF Resource Center. Retrieved from http://www.sifma.org/issues/legal,-compliance-andadministration/reporting-by-investment-advisers-on-form-pf/overview/ The information provided by the Securities Industry and Financial Markets Association (SIFMA) provides and overview of Form PF. Some important info from their resource center provides us with the type of data and what type of advisors need to fill out what sections of Form PF. It also provides the deadlines for filing Form PF based on the type of advisors and their AUM. This data validates the authenticity of the article by Blumberg. Financial Industry Regulatory Authority (FINRA) (2014, January) Form PF: Filing Online. Retrieved from http://www.iard.com/pfrd/pdf/form_pf_filing_online_reference_guide.pdf The Form PF filing guide by FINRA describes who has to file Form PF and how to do it. Some important and relevant info from this article was about the electronic filing system PFRD, which is required to be used and that a Form PF draft will be kept for no longer than 180 days. Brody T. (2012, June). New Regulatory Filing Requirements For Advisers To Private Investment Funds. Retrieved from http://www.metrocorpcounsel.com/pdf/2012/june/33a.pdf This article by Taylor Brody talks about new regulatory filing requirements. Some important information from this article is about how some non-private fund assets must be considered in the advisors evaluation of whether or not it meets the requirement for minimum AUM for reporting Form PF. Edward Wildman Palmer LLP. (2011 November). Client Advisory- SEC Issues Final Rules On Form PF; Reporting Obligations Of Investment Advisers. Retrieved from http://www.edwardswildman.com/insights/publicationdetail.aspx?publicati on=2657 This article talks about the reporting obligations of investment advisors. Some of the important info retrieved from this article talks about who is excluded from filing Form PF and reporting frequency and deadlines. Price waterhouse Coopers Regulatory (PWC). (2011, November). A Closer Look, The Dodd-Frank Wall Street Reform and Consumer Protection Act. Retrieved from http://www.pwc.com/us/en/financial-services/regulatoryservices/publications/assets/closer-look-final-rule-private-fund-advisersform-pf.pdf
This article is about the Dodd- Frank Wall Street Reform and Consumer Protection Act that requires private fund advisors to file Form PF. The most relevant info retrieved from this article is about the background behind why Form PF must be filed and the types of private fund advisors and which groups they are categorized into, either large or small. MIO Partners Inc. (n.d.). Investment Management. Retrieved from https://miopartners.com/common/login.aspx?returnurl=%2fdefault.aspx The MIO website provides us with a lot of information about the background of the company. This website helps us identify what kind of filing requirements and deadlines your advisors will have to meet based on the type of investment advice they provide. NorthPoint Financial. (n.d.) Portfolio Management. Retrieved from http://www.northps.com/financial/products/portfolio-management This website provides an overlook of a third party application. This application consolidates data from multiple systems into a single portfolio. NorthPoint Financail (n.d.) Clients. Retrieved from http://www.northps.com/financial/clients This section of the NorthPoint website provides us with a list of their high profile clients that utilize their portfolio management system. This provides us with assurance that their ICT is prominent in the investment management industry. U.S. Securities and Exchange Commission (SEC).(2011, October, 26) SEC Approves Confidential Private Fund Risk Reporting. Retrieved from http://www.sec.gov/news/press/2011/2011-226.htm The SEC article talks about the purpose of Form PF. Also there is a lot of information about reporting requirements, which validates that information provided by Blumberg, PWC, and Brody. iv. Client Summary of Feedback Thank you Joseph for the research you conducted for my coworkers and I here at MIO Partners Inc. Both the general guidelines for submission as well as the information required to fill out form PF will likely prove to be very useful in the MIO workspace. Thank you for condensing the information around MIO and the category that the firm falls into. You went above and beyond in your research regarding our methods of data management and process platforms. They will now both be capable of handling the large clumps of data that are required when filling out form PF. Furthermore, the third party (NorthPoint Financial) Portfolio Management System application appears to be a fine investment and will undoubtedly aid in consolidating time while creating our new automated filing system. I will definitely bring up the PMS application the CIO for consideration. Thank you for the outstanding research for my project. Thank you for the time and effort you put into your research for this project. Both MIO and I are very grateful for the work you have done here. Well done.