With the initial August Form PF filing deadline and a subsequent quarterly filing in November now past, the industry can now reflect back on the daunting process of collecting and reporting on more than 2,000 data points on their businesses and portfolios. Having assisted many alternative asset managers to automate the filing and reporting of Form PF, we are now in a position to distill these experiences into a series of best practice lessons for smaller investment managers preparing for the December/January filing.
What we have found is that in some cases Form PF has been a catalyst for fund managers to re-evaluate their data management and reporting capabilities in their entirety, and in many cases Form PF has required at least some level of incremental investment in IT.
August filers, those funds with over $5 billion in assets under management (AUM), were required to file sections 1 and 2 of Form PF with the US Securities and Exchange Commission. The filing frequency and specific sections to be completed are dependent on the type of fund registered (see graphic below).
Specifically, December/January filers will be required to deal with the same set of grey areas as the first filers albeit at a different scale depending on their portfolio composition. Below are some strategies in creating a successful road map in your own Form PF filings:
Maintain an audit trail
Much like an individual who files his or her taxes for the first time, the firms that kept extensive records and started the filing process early fared better than those who did not. Throughout the entire filing process it is essential to maintain a comprehensive audit trail. This involves keeping a record of all inputs into the filing and the assumptions behind them, this ensures that a SEC audit – if ever undertaken – runs as smoothly and issue-free as possible.
We cannot stress how important it is to begin preparations for filing at an early stage. For firms we encountered that began weeks prior, the added time provided a buffer for review of all section requirements. We also dealt with a handful of funds that waited days prior to the deadline to initiate their filing. While completed successfully, the stress and tension prevented confident internal collaboration and review of the submitted returns. Whether filing internally or through a service provider such as a fund administrator, we recommend beginning the filing process early to ensure a full review/re-file cycle.
Coordinate with solution providers
Leverage automated solutions. Many managers can spend more time collaborating internally and ensuring accurate filing data rather than building databases and new reports. Automation can also save crucial time and significantly reduce the chance for manual errors.
Organize cross-functional teams and allocate time
Filing Form PF is a large undertaking for funds of any size. Managers must organise specific teams: accounting, operations, risk, compliance and IT. Portfolio Managers themselves must also allocate time. Form PF consists over 2000 data points and multiple sections, allocating time for teams to work, collaborate and review is essential. No one team or individual will have enough data to complete the entire form.
Identify grey areas for interpretation and confer with legal counsel
Once drafted, you will be able to highlight a number of questions that are open to interpretation and require further review. If funds have started early, this process will enable to them to thoroughly investigate any such issues to their satisfaction. Many of these ‘grey area’ questions will require a discussion with legal counsel and/or the fund’s head of compliance.
Conduct a mock filing
Run the filing to ensure accuracy, continuity and address any last second roadblocks that need immediate attention.
The SEC has presented many private fund managers with the most daunting regulatory task they have ever faced. The August filers saw firsthand the extent of the form and how highly collaborative the process needed to be. Learning from their planning or lack of planning gave many subsequent filers the basis for executing their own filings successfully.