Thursday February 25 2010

News Source: Fund Regulation

Focus: AIFMD

Type: General

Country: International




Fund-Axis would like to highlight the recent publication by the Technical Committee of IOSCO of an agreed template for the global collection of hedge fund information which it believes will assist in assessing possible systemic risks arising from the sector. The template was created by the Task Force on Unregulated Entities (“TFUE”).

 IOSCO Systemic Risk Data Requirements for Hedge Funds

 Kathleen Casey, Chairman of the Technical Committee, states “IOSCO believes that regulators should seek to develop a comparable and consistent set of data to be collected from local hedge fund managers and advisers to monitor systemic risks and prevent gaps in regulatory reporting requirements.”

 Data Reporting Categories

The intention behind the IOSCO template is to allow regulators to gather comparable and consistent data from managers and advisors about their trading activities, the markets they operate in, funding and counterparty information, amongst others.

 There are 11 proposed categories of information which incorporate both supervisory and systemic data and build on the data collection recommendations set out in IOSCO’s final report on Hedge Fund Oversight. Please note that regulators are not restricted from requesting further information in addition to that set out in the template at local level. It is also noted that the TUFE has suggested the first survey takes place in September 2010.

Fund-Axis has set out the 11 proposed categories of information below in further detail.

 1.         General Manager and adviser information

This is supervisory information that regulators would generally have available about hedge fund managers they have authorised and may be obtained via other mechanisms separate from any systemic risk survey.

  • Key principals, registered address, number of employees, number of funds, name of compliance officer, overseas offices, regulatory status, related affiliates, equity owners, relevant information about the financial health of the asset management company including, if applicable, any guarantees or agreements with parent companies; and

 Key service providers:

  • PBs, custodians;
  • Auditor;
  • Fund administrator and/or independent valuer;
  • Outsourcing and delegation arrangements;
  • Names of key funds managed and predominant investment strategies;
  • Location of overseas offices and approximate split of assets between these offices.

 2.         Performance and investor information related to covered funds

  • Recent performance details (net and gross);
  • Recent investor redemptions/subscriptions;
  • NAV vs. High Water Mark;
  • Investor classifications (Institutional, fund of funds, high net worth); and
  • Primary marketing channels.

 

3.         Assets under management

  • Group wide assets under management i.e. Total AUM and HF AUM;

 

4.         Gross and net product exposure and asset class concentration

  • For the manager’s aggregate hedge fund assets detail the material positions in various asset classes e.g. split:
    • For securities: Value of Long and short positions in Equities/unlisted equities/Corporate bonds/sovereign bonds/Convertible bonds/loans/securitised credit products/other structured products; and
    • For Derivatives: Long and short CDS positions and the gross value of FX, Interest rate and other derivatives. There should be an indication of the geographic split of assets within some of these products e.g. equities;

 

For significant individual HFs run by the manager detail the material positions in various asset classes e.g. split: as above but with more granularity.

 

5.         Gross and net geographic exposure

  • High level regional investment focus: e.g. US, Europe, Asia ex-Japan, Japan, Global, Global EM; and
  • Split of aggregate assets by the underlying currency of the assets held i.e. this is not the same as currency exposure which could be obscured by FX hedging.

 

6.         Trading and turnover issues

  • Turnover in various asset classes;
  • Clearing mechanisms for balance sheet instruments e.g. OTC vs. exchange traded; and
  • Derivative clearing mechanisms e.g. CCP vs. bilaterally.

 

7.         Asset/liability issues

  • Liquidity of assets;
  • Investor liquidity demands, short of suspension i.e. all gates enforced but assuming funds have not suspended redemptions;
  • Extent of term financing;
  • Use of side pockets; and
  • Ability to gate or suspend funds and any restrictions currently in place.

 

8.              Borrowing

  • Value of borrowings by source (PB, repo, stock lending, off balance sheet, unsecured); and
  • Borrowing from regulated vs. unregulated entities.

 

9.              Risk issues

  • Unencumbered cash;
  • Various risk measures used by hedge fund managers, e.g. DV01, CS01, Equity delta – which are examples of a portfolio’s sensitivity to movements in interest rates, credit spreads and equity markets; and
  • Descriptions of mechanisms to assess tail risk e.g. stress tests.

 

10. Credit counterparty exposure

  • Net credit counterparty risk, identifying primary counterparties and identities and locations of those counterparties; and
  • Extent of re-hypothecation (% of net equity re-hypothecated) and contractual limits to re-hypothecation.)

 

11. Other issues

  • Complexity e.g. gross size of options book, Number of open positions; and
  • Concentration e.g. Top 10 positions as a % of gross market value.

If you require any assistance in completing the above survey or would like to explore the possible reporting requirements needed to meet the above requirements, please don’t hesitate to contact Fund-Axis on info@fund-axis.com