Major Risk Related Regulatory Developments for 2015

In planning for 2015, we want to bring to your attention some recent and significant regulatory developments that all funds must bear in mind to ensure that your risk-related regulatory reporting and investor transparency are sound and do not raise red flags. In addition, having sound and institutional risk management continues to be a requisite for attracting and retaining investors today.

SEC to focus on asset management risks in 2015

SEC Chairwoman Mary Jo White has recently announced that the agency will be taking a closer look at risks in the asset management industry in 2015. The SEC plans to undertake a number of new initiatives including:

• Registered funds are expected to have in place enhanced controls so that they are better able to identify and address investment risks. The SEC also highlighted liquidity levels and the use of derivatives as two areas of potential scrutiny.

• Large investment advisers and other similar funds that are primarily “long only” are now being required to do more formal risk measurement and reporting such as stress testing. The SEC has pointed out that “while relatively novel, this will help market participants and the commission better understand the potential impact of stress events”. Therefore, asset managers need to implement stress testing capability if they have not already done so.

Link to SEC Report with 2015 priorities: http://www.sec.gov/about/secafr2014.shtml#.VJMsuIeBGUk

Hedge Funds now beginning to focus on AIFMD risk requirements

Even though the transition period for AIFMD compliance has ended, many fund managers subject to AIFMD are only beginning to focus on what they must do if they are interested in raising and keeping assets from European investors. We strongly recommend that managers have a well-defined strategy and implementation plan for complying with the myriad of complex disclosure, reporting and risk management requirements associated with AIFMD.

GRMA Recommendations:

• Comprehensive and Unified Approach to Risk measurement and Reporting

GRMA has found that many fund managers are taking a piecemeal approach to investor and regulatory risk related reporting. We believe that managers should take a unified approach to all risk-related measurement and reporting, so that their filings for Form PF, CPO/PQR, ESMA Annex IV, Open Protocol and other risk-related regulatory reporting are not only consistent but also efficient and cost-effective. GRMA can provide a fund manager with complete risk measurement and reporting as a cost effective managed service. Moreover, the independent, expert risk advice we offer can ensures that a fund has and maintains a sound, repeatable and sustainable process for all risk-related measurement and reporting needs.

• Risk Diagnostic Evaluation

For fund managers that may have gaps or weaknesses in their formal risk measurement and management capabilities relative to newly heightened needs, GRMA can perform a Risk Diagnostic Evaluation (“RDE”) to identify opportunities for cost-effective improvement. GRMA will evaluate a manager’s current risk management program and benchmark it against investor expectations, its peers, industry best practice standards and regulatory requirements. GRMA will provide a manager with a “Gap Analysis” report that can serve as a roadmap for upgrading the manager’s risk management program. And our risk management managed services are then available as a fast and high quality way for a manager to implement enhancements needed to maintain an institutional-quality risk management program that meets all internal and external needs.