Complying with Form PF

Complying with Form PF Advent Regulatory Update About the Author Martin Sreba is a Senior Director of Corporate Development and Solution Sales. In this role he specializes in aligning Advent solutions with strategic business and technology goals for clients in the investment management industry. Contact Martin at msreba@advent.com. Abstract On July 21st, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law, amending various rules for registration of advisors to both US and non-us domiciled private funds. Of the many reforms enacted, the most significant one comes from a new reporting standard for private fund advisors called Form PF, which took effect in July 2012. This form needs to be filed with the SEC by most of Advent s private fund clients yearly, and in some cases quarterly. By now most clients should be familiar with the Form PF requirement, but may not have figured out the most efficient way to comply with it without straining their resources. This document presents a case as to how Advent clients can leverage our suite to its fullest potential to meet these challenges head-on. Introduction to Form PF Form PF, also known as rule 204(b)-1, is a reporting obligation established by the SEC to actively monitor and track systemic risk in the financial industry. The reporting charter requires advisors of a certain size and complexity to report on a variety of categories for each fund they manage. Even though this may seem like another regulatory burden, the data necessary to generate this report requires information from disparate systems that may traditionally not even reside within the organization. Another significant change is the amount of accountability put on the managing partners of the respective firms. A sign-off is required by the partners on Form PF a Sarbanes-Oxley-like level of legal responsibility and fiduciary duty. Reporting Obligation on Rule 204(b)-1 Under this rule, all private fund advisors registered with the SEC are required to file certain basic information on Form PF. Advisors to qualified private equity funds, hedge funds and liquidity funds would be required to file additional information on Form PF based on size and fund type. All information should also include aggregated data from any feeders that may exist within the structure of the fund. Small Private Fund Advisors Small private advisors with at least $150 million in AUM need to file Form PF once a year and report what the SEC considers basic information: > Gross and net asset value of each private fund > Monthly and quarterly fund performance > Fund total borrowings, along with the breakdown between US and non-us financial institutions > Metrics of creditors to monitor counterparty credit risk > Total number of beneficial owners of the fund and their respective percent of total investment

2 Complying with Form PF Providing a centralized, singlevendor solution to meet the Form PF requirements will help firms manage the normalization of the data more efficiently and quickly. Larger Private Fund Advisors Larger private fund advisors are categorized into three distinct types: > Any advisor to hedge funds with at least $1.5 billion in AUM > Any advisor to liquidity funds with at least $1 billion in AUM > Any advisor to private equity funds with at least $2 billion in AUM The focus and frequency of the information to be reported depends on the type of fund the advisor manages, including: > Information on fund borrowings and guarantees > Information on events of defaults on any fund or portfolio company debt > Breakdown of fund s investments by industry, geography, liquidity, counterparty > Percentage of concentration of fund s investments by central clearing agents, and in derivatives > Risk measures such as VAR and stress testing > Information about debt of controlled companies > Identification of counterparties providing third-party bridge financing to portfolio Filing Requirements Small Private Fund Advisors Small private advisors with at least $150 million in AUM: > Annual filing due 120 days after fiscal year end Larger Private Fund Advisors Larger private fund advisors are categorized into three sections: > Any advisor to hedge funds having at least $1.5 billion in AUM Quarterly filing due 60 days after each quarter end > Any advisor to liquidity funds having at least $1 billion in AUM Quarterly filing due 15 days after each quarter end > Any advisor to private equity funds having at least $2 billion in AUM Annual filing due 120 days after fiscal year Compliance with Form PF Many hedge fund managers lack the operational infrastructure to cope with the demands of Form PF, and are looking to their software providers for a solution. Since Advent products are in the forefront of many of our clients infrastructures, we are well positioned to provide guidance and support in addressing this regulatory burden. In conducting our due diligence process and analysis on the various sections of the requirements for Form PF, we determined that the vast majority of the data points required can be stored and retrieved in Advent products to meet this regulatory burden streamlining the process of data management for our clients. Form PF: Helping Clients with Advent Solutions The recommendations that follow can be implemented immediately and require no development effort. These recommendations are the result of a collaborative effort by multiple members of Advent s support, services and product development teams. Business advisory firms have also been consulted to gain a clearer understanding of these requirements.

Advent Regulatory Update 3 The vast majority of the data points required for Form PF can be stored and retrieved in Advent products to meet this regulatory burden, streamlining the process of data management. Industry Challenge Hedge funds need to be proactive in finding the means to meet these mandates, whether through internal business process reengineering or through their fund administrators. The challenges they face in answering these new disclosure requirements can be organized into the following common themes: > Aggregation of data from disparate systems > Normalization of data between sources > Unique reporting taxonomy defined by legislators > Support for notional valuations as well as leverage > Provide risk information via stress test and VAR calculations > Counterparty margin information Proposed Advent Solutions Aggregation of data from disparate systems. Form PF data requirements are vast and need to be sourced from multiple departments within a financial firm known as the front, middle and back office. Most of these departments do not share common systems, and sometimes don t even have the technology to support each one of these completely different functions. To bridge the gap between these departments, Geneva with the World Investor module, together with Syncova Margin and Financing and Tamale RMS, can close the gap and act as a consolidated single solution to provide data required in Form PF. Normalization of data between sources. The Advent suite consists of multiple types of systems that span the front, middle and back office. Since the Advent suite leverages a common technology across all the products, out-of-the-box integration can help firms streamline operational processes in their organizations. Providing a centralized, single-vendor solution to meet the Form PF requirements will help firms manage the normalization of the data more efficiently and quickly. Firms will benefit from our product development team s close collaborative efforts with our clients and industry experts in designing the most effective methods for harnessing information suitable for Form PF. Unique reporting taxonomy defined by legislators. Legislators have created a new and unique standard of classifications that need to be applied to all data reported on Form PF. This new taxonomy is forcing investment advisors to reevaluate their internal reporting standards and adopt this new SEC-designated nomenclature. For example, the definition for strategy, country, asset type or region needs to follow the SEC s classification scheme and will not necessarily follow the advisor s (a strategy definition would need to be defined as one of 17 possible choices, i.e. Equity-Market Neutral, Macro-Commodity, Relative Value-Volatility, etc.). With current Geneva functionality, this type of reclassification can be done with what is known as Geneva Translation Tables. This function was designed to enable Geneva to have multiple classification schemes in one unified data model. New and existing clients don t need to be bound to a taxonomy defined by the regulators, but will be able to define a data model that is suitable for their daily operations and will have the ability to overlay the classification scheme required by Form PF. Support for notional valuations and leverage. Market value calculations to be reported to the SEC not only require a simple valuation, but also need to show all notional exposures of derivative instruments inclusive of any leverage associated with the fund. Geneva natively supports and tracks all derivative instruments, with the ability to display not only a straight net asset value but also the notional value of these assets. Since this is native functionality to Geneva, clients will gain the added

4 Complying with Form PF Geneva Functionality Geneva allows you to zoom in on critical data easily. Any number of complex legal entities can be tracked in Geneva, enabling look-through reporting from the top level of the fund all the way through to the lowest tier. 1 Form PF, General Instructions, Section 6, page 5 advantage of being able to report their assets on either basis. From a leverage perspective, the addition of the Syncova Margin and Financing module will empower fund advisors with the ability to report this information in one unified product suite, reducing the burden of having to assimilate data from various systems. Provide risk information via stress tests and VAR. Risk systems primarily reside in the middle offices of larger financial institutions. Many mid-tier advisors, $800 million to $1.5 billion in AUM, do not have this type of technology in-house and face the daunting task of having to report on this type of information. With the integration of Syncova Margin and Financing and Geneva, users of the Advent product suite will have the ability to run linear stress tests on their funds and produce this information in a single normalized data set. The task of producing VAR and more complex non-linear stress metrics can be accomplished via integration to any third-party risk system by using a built-in integration toolkit. Providing this type of flexibility will help clients streamline the process of gathering data that traditionally would need to be sourced from disparate systems. Counterparty margin information. The Form PF regulation requires reporting and breakout of margin information. Most hedge funds do not have an internal margin calculation engine, as this type of data traditionally resides with the advisors counterparties and is only available on statements or other similar records. The task of normalization and aggregation of this data would be daunting to any advisors without margin systems. With the addition of Advent s Syncova Margin and Financing, a robust margin and financing charge aggregation product, one vendor solution could be leveraged to provide the type of margin information required by Form PF without the need to manually aggregate or calculate this type of information across all the counterparties. Causality of the Proposed Form PF Solution The suggestions provided share one important dependency for adoption: the need for our clients to be on the most up-to-date version of Geneva, leveraging designed features in their intended manner. Without a consistent adoption of our newest versions and intended functionality,

Advent Regulatory Update 5 Syncova Margin and Financing Module Advent s Syncova Margin and Financing module tracks credit and margin information required by Form PF. many of the latest integration points and workflow enhancement will not deliver the desired effect. Legal Entity Compliance Form PF Requirement Hedge funds with master feeders and parallel funds need to file information in Form PF inclusive of that feeder detail according to the following rule: Investments that a feeder fund makes in a master fund should be disregarded but other investments of the feeder fund should be treated as though they were investments of the aggregated fund. 1 Geneva Client Impact All hedge funds must now report not only the master trading entity, but also to include the feeder detail in their reporting values. With standard Geneva functionality, all data needed for Form PF for masterfeeders can be provided in one report only if the entire entity is tracked on the system. If the feeders are tracked outside of Geneva, the additional feeder data will need to be added manually to all data provided in Form PF. Advent Solution for Legal Entity Compliance The Geneva Fund Structures module will enable clients to meet this Form PF requirement. Any number of complex legal entities can be tracked in Geneva, enabling look-through reporting from the top level of the fund all the way through to the lowest tier. This type of feature set and reporting capability is available in the latest version of Geneva. Clients will need to upgrade to this version to leverage this functionality. Notional Value Calculations Form PF Requirement Section 1(b) as well as Section 2(a) of Form PF require that any derivative positions in the funds be reported at a total gross notional value, and further require exposures to be calculated for options using delta-adjusted market valuations. Geneva Client Impact Current Geneva clients will need to reevaluate how they are currently tracking derivative instruments in the system. If legacy workarounds are still being implemented on open positions, such as using Futures to track Swaps, creating standard reports to display notional values will not be rudimentary. Clients who have implemented derivative instruments in Geneva by use of intended functionality will benefit from a standardized usage of built-in notional value formulas and reports in the system. Advent Solution for Notional Value Calculations Derivative support in Geneva is native to the system. All types of derivative instruments are supported, allowing clients to track notional as well as market values of these complex instruments without any workarounds. Even the notion of a valuation of the respective underlying instrument to correspond to the traded structure exists in the latest version of Geneva. With the new middle office functionality enhancements to Geneva, the ability to show delta-adjusted market values for options is part of the solutions, needing only the delta values for the respective options to leverage the standard formulas on reports.

6 Complying with Form PF Geneva World Investor Geneva World Investor supports complex masterfeeder fund structures. Advent clients will be positioned most favorably by leveraging the complete Advent product suite, using Geneva, Syncova Margin and Financing, Geneva World Investor and Tamale RMS. Credit Exposure Tracking Form PF Requirement In Section 1(b), 1(c), 2(a) and Section 2(b) of Form PF, detail information on concentrations of borrowings as well as margin information with counterparties is required to be provided to the SEC. This information detail is specifically required to track credit exposure of the advisors funds. Geneva Client Impact Current Geneva clients will have the opportunity to track this type of information by using Advent s Syncova Margin and Financing. The integration is now available in Geneva, expanding the functionality of the Advent suite. Advent Solution for Credit Exposure Tracking With the addition of the Syncova Margin and Financing module, the Advent suite will be able to provide this type of credit level information. The integration between the two systems will help clients normalize this data from one solution, leveraging standard reporting capabilities of the product suite to report on the desired information. With this new module, users of the Advent suite will be able to track financing as well as margin information per counterparty as required by Form PF. Investor Level Information Form PF Requirement One of the newest types of data points required on Form PF is information about the fund s investors. Concentrations of equity by investor as well as total performance fees charged by the fund need to be reported to the SEC. Geneva Client Impact Clients who have been on Geneva will recognize that the original functionality was geared toward fund level reporting information. The application was not originally intended to provide investor-level detail for the funds, nor calculate incentive fees for investors. Being on the latest version of Geneva will enable clients to simply enable the Investor Allocation Module and expand the capability of the system. Advent Solution for Investor Level Information Geneva clients who are up to date with the latest upgrades will be able to leverage Geneva World Investor. This module is available to clients by simply adding a new product key to the originally installed Advent product with no additional installation. The added functionality will enable Geneva clients to track investorlevel detail in a traditional portfolio management system, supporting many features that will help to normalize the type of data required in Form PF, as it will be available in one integrated product suite.

Advent Regulatory Update 7 Tamale RMS Tamale RMS preserves documentation of investment theses for easy retrieval. Qualitative Data Storage Form PF Requirement Some of the data points required in Form PF, particularly in section 4(b), tend to be much more qualitative in nature. Detail about the reporting fund s financing and investments operations are mandatory and go as far as requiring information such as debt-toequity ratios as well as the indebtedness of the reporting fund s controlled companies. Geneva Client Impact As firms look to strengthen their data management capabilities by centralizing all pertinent information in one enterprise product suite, data normalization will become much easier if the entire data model lies in one integrated product with one vendor. Advent Solution Qualitative Data Storage With Advent s Tamale RMS, private fund advisors can organize and store critical qualitative data elements in one centralized location. All documentation pertaining to the firm can be saved in a secure repository and be retrieved using flexible search parameters. This qualitative information can now be available alongside data from the portfolio management systems necessary to comply with Form PF. Conclusion Rule 204(b)-1, otherwise known as Form PF, requires significant disclosures to be made by private fund advisors. Information needs to be normalized and aggregated in systems from the front, middle and back offices of financial organizations. Advent clients will be positioned most favorably by leveraging the complete Advent product suite, using Geneva, Syncova Margin and Financing, Geneva World Investor and Tamale RMS. The combined products deliver most if not all of the information required by Form PF, streamlining the organization s internal processes to provide this multifaceted array of data. Advent has partnered with Data Agent to deliver the most comprehensive solution possible to our clients. To help streamline the process and save on integration costs, we have built a series of Geneva extracts that deliver the relevant data into the Data Agent Data Mart. Data Agent then works with the client to centralize all the required data for Form PF and applies extensive data transformation tools to meet client specific needs. Once all the mapping and specific Form requirements are agreed to, the client has a fully automated and repeatable process in place to approve the components of the Form, including direct connectivity to FINRA for the automated filing.

8 Complying with Form PF Who We Are Over the last 30 years of industry change, our core mission to help our clients focus on their unique strategies and deliver exceptional investor service has never wavered. With unparalleled precision and ahead-of-the-curve solutions, we ve helped over 4,500 firms in over 60 countries from established global institutions to small start-up practices to grow their business and thrive. Advent technology helps firms minimize risk, work together seamlessly, and discover new opportunities in a constantly evolving world. Together with our clients, we are shaping the future of investment management. For more information on Advent products visit www.advent.com. This communication is provided by Advent Software, Inc. ( Advent ) for informational purposes only and should not be construed as or relied on in lieu of, and does not constitute, legal advice on any matter whatsoever discussed herein. Advent shall have no liability in connection with this communication or any reliance thereon. Advent Software, Inc. Join the conversation [HQ] 600 Townsend Street, San Francisco, CA 94103 / PH +1 800 727 0605 [NY] 1114 Avenue of the Americas, New York, NY 10036 / PH +1 212 398 1188 [HK] Suite 3118 3120, Level 31, Entertainment Building, 30 Queen s Road, Central, Hong Kong / PH +852 3103 1000 [UK] 127 133 Charing Cross Road, London WC2H 0EW, UK / PH +44 20 7631 9240 Copyright 2014 Advent Software, Inc. All rights reserved. Advent, Geneva, and Tamale RMS are registered trademarks of Advent Software, Inc. All other products or services mentioned herein are trademarks of their respective companies. Information subject to change without notice. Printed on recycled paper. REGFORMPF0114