In order to enhance international supervisory cooperation in identifying and monitoring systemic risks and minimizing regulatory reporting gaps across different jurisdictions for hedge funds, IOSCO published on 25 February 2010 details of an agreed template for gathering of hedge fund data on a global basis specifying 11 categories of information required from hedge funds. The major aim of the template is to assist regulators in collecting comparable and consistent data from hedge fund managers and advisors in relation to, among others, their trading activities, the markets they operate in and funding and counterparty information. IOSCO also believes that the template would facilitate and provide useful information regarding any intended legislative changes being considered in various jurisdictions resulting from the global financial crisis.
Having said that, the template may not contain all types of information and data which individual local regulators might want to obtain and so regulators are not prohibited from requesting additional information at a domestic level.
The first data gathering exercise has been recommended to begin, on a "best efforts" basis, in September 2010, subject to implementation locally.
The Template
The 11 categories of information required from hedge funds as specified in the template are summarised as follows:
General and basic manager and adviser information: such as key principals, registered address, number of employees, number of funds, name of compliance officer, overseas offices and regulatory status etc. Identities of key service providers should also be included.
Performance and investor information related to covered funds: recent performance details, recent investor redemptions/subscriptions, net asset values (NAV) vs High Water Mark, classification of investors and primary marketing channels.
Assets under management (AUM): i.e. total AUM and hedge fund AUM.
Gross and net product exposure and asset class concentration: details of material positions in various asset classes e.g. for securities, information such as value of long and short positions in equities, corporate bonds, convertible bonds and other structured products etc. and, for derivatives, information such as long and short credit default swap (CDS) positions and the gross value of forex, interest rate and other derivatives etc. For "significant" (not defined at the moment) individual hedge funds run by the manager, more granular details would be required.
Gross and net geographic exposure: information about high level regional investment focus and split of aggregate assets by the underlying currency of the assets held.
Trading and turnover information: turnover in various asset classes, clearing mechanisms for balance sheet instruments and derivative clearing mechanisms.
Asset/liability information: liquidity of assets, investor liquidity demands, up to but excluding suspension, extent of term financing, use of "side pockets" and ability to gate or suspend funds and any restrictions currently in place.
Borrowing: value of borrowings by source (PB, stock lending etc.) and borrowing from regulated vs unregulated entities.
Risk issues: unencumbered cash, various risk measures used by hedge fund managers and description of mechanisms to assess tail risk, such as stress tests.
Credit counterparty exposure: net credit counterparty risk, identifying primary counterparties and identities and locations of those counterparties and extent of (including any contractual restrictions on) rehypothecation.
Other issues: complexity e.g. gross size of options book and concentration e.g. top 10 positions as a % of gross market value.
What does this mean in practice?
Not all jurisdictions will necessarily meet the recommended timetable. The details of implementation will be key.
Any "gold-plating" by jurisdictions above the minimum requirements will inevitably lead to a degree of uncertainty/inconsistency.
Presumably it remains to be agreed how often data will be collected – in any event, systems will need to be updated where necessary to comply with the requirements, potentially meaning significant extra compliance work.
Further information
Please see the IOSCO's media release"International regulators publish systemic risk data requirements for hedge funds"