May 1, 2012
Just like the calm before the storm, it is hard to believe the forecast, that the mother of all reporting exercises has been thrust on the alternatives industry and is set to be on our doorstep this summer. As innocuous as the Form PF (the brainchild of the Dodd-Frank Act) looks on the surface, there is an incredible amount of detailed work that lurks beneath it (before we can “push the button”). One could argue that none of this reportable data is breaking new ground (e.g. holdings concentrations, counterparty exposure, risk, borrowing, investor liquidity, derivatives, collateral, etc.). The challenge is that this has never been asked for before, in a single comprehensive report – not only in terms of depth and breadth, but most importantly compiled consistently within an industry-wide standard.
Fund managers have also been preparing to meet the stringent requirements imposed by the central clearing for OTC derivatives, a major element of the Dodd-Frank Act. Firms must now automate their middle and back office processing work for OTC derivatives, and license (or build) connectivity, valuation, and collateral management software.
Since the moment the final rules from the CFTC and the SEC were adopted a few months back, there have been many blogs/articles published and flurries of e-mails sent from law firms, accounting firms, and fund administrators to their clients summarizing the requirements of the new regulation. However, the purpose of this newsletter is to point out some of the major operational challenges that many funds will face in the preparation and implementation required to comply with the Dodd-Frank (including completing Form PF and preparing for central clearing) and to provide guidance on how to overcome these challenges.