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Risks inherent in the Financial Sector

 Market Risk
 Credit Risk
 Operational Risk
 Liquidity Risk

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Financial Crisis in 2008

•Why this happened?

•Which Risks were mismanaged?
•What were the consequences of this crisis?
•Why the need for Regulation?

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Current Regulatory Environment

•Regulations introduced to understand the systemic

risk

•FormPF
•CPO-PQR
•AIFMD

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Question Categories - Complex Board

Question Types Percentage

Asset Exposures 18%
Investor/Portfolio/Financing
Liquidity 10%
Counterparty Exposures 9%
Fund Performance 8%
Geographical Focus 7%
Trading and Clearing
Mechanisms 7%
Investor Information 6%
Risk 5%
Principal Markets 4%
Borrowings 3%
Dominant Influence 3%
Redemptions 3%
Subscriptions 3%
Strategy Types 2%
AuM/NAV 2%
Others 10%

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Current Regulatory Environment

Various calculations pertaining (but not limited) to:

•Counterparty Exposures
•Gross Notional
•Portfolio Liquidity
•Stress Tests
•Unencumbered Cash

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Counterparty Exposures-Calculation

AIFMs should report any type of exposure to a counterparty net of any collateral posted to
reduce the counterparty risk.

Counterparty risk should be understood as market risk and therefore includes interalia
counterparties issuing bonds or shares or underlyings to financial derivative instruments as well
as counterparties to financial derivative instruments.

AIFMs should report the name, the BIC and the LEI or the IEI of the counterparty as well as the
exposure expressed as a percentage of NAV.

When counterparties are part of the same group they should be aggregated at the group level
and not treated as separate entities.

For purposes of this question, you should treat affiliated entities as a single group to the extent
exposures may be contractually or legally set-off or netted across those entities and/or one
affiliate guarantees or may otherwise be obligated to satisfy the obligations of another. CCPs
should not be regarded as counterparties for purposes of this question.)

In your response, you should take into account: (i) mark-to-market gains and losses on
derivatives; and (ii) any loans or loan commitments.)

However, you should not take into account: (i) margin posted by the counterparty; or (ii)
holdings of debt or equity securities issued by the counterparty.

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What is AIFMD?

 European Union directive

 New regulatory and supervisory framework for Alternative Investment Fund
Managers (“AIFMs”) , includes Hedge funds and Private Equity. UCITs
exempt.
 Primary objectives; monitor systemic risk, increase investor protection,
enhance transparency.
 The Directive covers:
 EU AIFMs that manage AIF (based in EU or non EU)
 Non-EU AIFMs that manage AIFs established in the EU
 Non-EU AIFMs that market the units or shares of an AIF in the EU

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Report Contents

Article
Section Information Detail To be completed by
Reference
Manager information All AIFMs covered by the Directive
1 24(1)*
(including Registered Managers*)
Fund information All AIFs covered by the Directive
2 24(1)*
(including Registered Managers*)
All AIFs managed or marketed in the
3 24(2) Fund information union by EU AIFMs or marketed in the
union by non EU AIFMs

AIFs employing leverage on a

Fund information substantial basis (Greater than 3
4 24(4)
times leveraged under the
commitment method)

* Registered managers < €100m are subject to a lighter reporting regime under Article
3(3)(d)
Reporting Frequency

Frequency AIFM AIF

Quarterly > €1bn AUM* - Non-Private Equity AIFs

managed by Quarterly AIFM

- Any Non-Private Equity AIF >

€500m
Half-yearly > €100m & < €1bn AUM* - Non-Private Equity AIFs, <
€500m, managed by Half-yearly
AIFM
Annually Private Equity Only Managers - Private Equity AIFs
Opt-in AIFMs < €100m AUM* - AIFs managed by Annual Filers

* Assets Under Management is used in reporting threshold values. It is a Total Gross

Exposure calculation that can substantially inflate NAV for anything other than Long only
strategies
FormPF Introduction

•What is Form PF
•Why required
•Form PF Filing Requirements
•Form PF Timelines

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 What is Form PF

Implementation of the Dodd-Frank Act

US regulatory requirement designed to assist FSOC

in monitoring systemic risk

Registered investment advisors managing private

funds are required to file Form PF with SEC
Detailed information on private funds managed
must be disclosed including portfolio, performance
and risk data

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 Who needs to File Form PF

Private Fund Adviser who are registered or required to register

with the SEC as an Investment Advisor
(even if the advisor is based outside of U.S)

OR

Private Fund Adviser who are registered or required to register

with the CFTC as a CPO or CTA and also registered or required
to register with the SEC as an investment adviser

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 AIFMD vs. Form PF
AIFMD
Valuations, Depository, Risk Management and Reporting
Grosses up derivatives by taking the absolute value of the
Calculation of AUM underlying exposures. For non-Derivatives, sum of absolute
market values is considered.
Reporting Reporting frequency at the Fund Manager level may be
frequency different than that of fund level
30 days from the period end date for all AIFMs and AIFs
Reporting Deadline
(except an additional 15 days for FOFs)
All AIFMs managing or marketing funds in the EU are under
Applicability
the purview
Aggregation
Feeder Funds can not be aggregated into the Master Fund
Determination of
Driven by Fund Domicile and Leverage
Sections
Leverage Specifically designed calculation of leverage
AIFMD reporting will be captured by NCAs who will then
deliver XML reports to ESMA. Also NCA reporting systems
may differ, with some accepting the Esma XML format from
Delivery
managers, and others developing web interfaces to support
manual data entry or Excel file upload
Form PF
Reporting
Assets side of the Balance sheet
Frequency of Reporting is the same at the
Advisor and the Fund level
60 Days for Large Hedge Fund advisers (Quarterly
Filing)
15 Days for Large Liquidity Fund advisers (Quarterly
Filing)
120 Days for all other advisers (Annual Filing)
All investment advisers registered with the SEC
are under the purview
Aggregation of Feeder Funds into the Master
Fund is allowed
Driven by manager size and fund size/type
No Leverage Calculations involved
Managers submit the XML file directly to the
SEC via a single website
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Data and Process Flow

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Review & Filing Process
T-20 T+0 T+20

Supply static data

Fund Setup on portal

NAV Review & Approval

Upload Data & Produce answers

Static Trading data Financial data

Review Answers & Sign Off

Review Answers

Submit XML

Fund Accounting/Risk/IS
Regulatory Solutions Client
Teams

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Demo - Regulatory Solution Portal

https://www.sscfundservices.com/

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Thank you