Confluence has entered into a strategic collaboration with Global Risk Management Advisors (GRMA), a leading investment risk management advisory and implementation firm providing asset managers and institutional investors with complete, independent, institutional-quality risk management solutions as a managed service. One of the key focus areas of GRMA’s risk management services is on all aspects of risk-related regulatory and investor reporting, including for Form PF, AIFMD, and CPO-PQR. Sam Wong and GRMA recently briefed their client base on the SEC’s Form PF report to Congress and they have been kind enough to share it with our reader base as well.
Key Takeaways from the SEC’s Report on Form PF to Congress
On August 15, 2014, the U.S. Securities and Exchange Commission (SEC) released its second annual report on Form PF to Congress as directed under Dodd-Frank. In the report, the SEC not only detailed the agency’s utilization of Form PF filings for creating source data to assist the Financial Stability and Oversight Council (FSOC) in its assessment of systemic risk, but additionally demonstrated how the agency’s approach to Form PF is evolving to become a greater part of its examination, enforcement, and risk monitoring activities in matters related to private fund advisers.
GRMA just recently released a briefing for clients discussing GRMA’s key takeaways from the SEC’s report as well as GRMA’s recommendations for what funds should be doing to meet increased investor and regulatory scrutiny, minimize regulatory red flags, and ensure a sound, sustainable and replicable process for Form PF filings.
Key Takeaways from the SEC’s Report
Examination and Investigations: the SEC’s Office of Compliance and Examinations (OCIE) is using Form PF data in the examination process. OCIE staff use the PF data pre-exam to understand the “nature of an adviser’s business and investment strategy” and during the examination process, for checking and evaluating “inconsistencies with other information obtained from the adviser during an examination, such as due diligence reports, pitch books, offering documents, operating agreements and books and records.”
In addition, the OCIE staff have been checking that the “investment strategies disclosed to investors match the information contained in the adviser’s Form PF filing, particularly with respect to holdings, leverage, liquidity, derivatives and counterparties.” The OCIE staff has already begun to ask private fund managers “to substantiate or to explain any inconsistency or red flag.” In fact, the SEC has indicated that they will send out an examination “deficiency letter” based upon such use of Form PF data in an examination.
Enforcement Action: the SEC’s enforcement staff obtains and review Form PF filings of certain advisers in connection with “investigations of private fund advisers.”
Risk Monitoring: the SEC continues to develop analytical tools and reports based on Form PF data as part of its risk monitoring activities. In addition, various groups within the SEC such as the Division of Economic and Risk Analysis (DERA) and the Office of Compliance Inspections and Examinations (OCIE) are using Form PF data for their respective needs including to:
Identify possible “red flags at firms that may trigger examinations”;
- “Identify trends and possible emerging risks in the private fund industry”; and
- Support their screening process for improper conduct or fraud as part of an “aberrational performance inquiry (API)”.
To access the full briefing and GRMA’s recommendations based on the SEC’s report, please click here.