Gauging Form PF: Data Tolerances in Regulatory Reporting on Hedge Fund Risk Exposures

Form PF and Hedge Funds: Risk-Measurement Precision for Option Portfolios

“…We then assess the measurement tolerances of Form PF by examining the range of actual risk exposures as measured directly from portfolio details. The paper reaffirms the feasibility of the constrained risk-maximization methodology of Flood, Monin, and Bandyopadhyay [2015], who considered market-neutral portfolios of exchange-traded equities, without options. We find that the inclusion of options has a significant impact on actual portfolio risks.…”

“…We review the origins of Form PF as a mechanism for systemic risk assessment and investor protection, and consider the precision of Form PF as risk measurement tool. We extend the methodology of Flood, Monin, and Bandyopadhyay [2015] to consider the effect of basic options strategies on the risks that are measured (and unmeasured) by Form PF. Although the investment strategies are quite generic, the results are revealing.…”

“…More ambitiously, Form PF might be revamped to require position-level details of portfolio holdings, similar to the SEC's Form 13F. Aside from the application to Form PF, the methodology of constrained risk maximization developed in Flood, Monin and Bandyopadhyay [2015] and extended herein provides a useful tool to help guide the choice of measurement dimensions. VaR (P), 5%, daily 1.00 0.00 1.00 1.00 1.00 1.00 1.00 1.00 0.00 0.00 -0.01 1.00 0.00 1.00 1.00 1.00 1.00 1.00 1.00 0.00 0.00 0.02…”

The Hedge Fund Industry Is Bigger (and Has Performed Better) Than You Think

“…Thus, some qualifying hedge funds in our sample have a NAV less than the associated threshold of $500 million. See Flood, Monin, and Bandyopadhyay (2015) and Flood and Monin (2016) for more information on the structure and history of Form PF. The additional information filed by Qualified Hedge Funds is reported in Section 2b of Form PF.…”

Leverage and Risk in Hedge Funds

“…sec.gov/rules/final/2011/ia-3308-formpf.pdf. For more detail on the history and structure of Form PF, seeFlood, Monin, and Bandyopadhyay (2015) andFlood and Monin (2016).12 Regulatory assets under management is defined in Form ADV Part 1A Instruction 5.b. At the fund level, it is essentially equal to balance sheet assets plus uncalled capital commitments, the latter of which are more relevant for private equity funds than hedge funds.…”