Coming Down the Assembly Line: Automated Form PF Reporting

Regulate Your Risk…GET A CAR!
Commuters who use public transportation encounter the risk of being tardy on a daily basis. There are so many factors unaccounted for that the probability of arriving on time is not in their favor. What to do? How can they eliminate the chance of, say, a subway breakdown or late bus?

An answer: they can buy a car.

A similar parallel can be drawn to the 2008 financial crisis. In response to the crisis, the Dodd-Frank Act established the Financial Stability Oversight Council (FSOC). This council’s mission is to monitor and respond to systemic risks affecting financial markets in the United States. How can the FSOC hedge their risk of being too late to a financial crisis that would crush the economy?

An answer: Form PF.

The process of automating Form PF reporting is a daunting task that will soon come to fruition thanks to the collaborative efforts of The Financial Risk Group and ConceptOne. It starts with the building blocks of data validation and ends with a final product ready for analysis by the FSOC. Within this progression, certain data serves as a direct input to the report while other data is used to calculate output data that will be implemented into the report. An added feature includes tracking the data used to answer the questions on Form PF. This feature is especially important for auditing purposes. The process has already begun rolling down the assembly line. While most private fund advisers will need to begin filing for their fiscal year or fiscal quarter ending on or after December 15, 2012, some funds will need to begin as soon as June 15, 2012.

Those that qualify for the June 15, 2012 date are advisers with at least $5 billion in assets under management (AUM) attributable to hedge funds or private equity funds and liquidity fund advisers with $5 billion in AUM, attributable to liquidity funds and registered money market funds.

Much like car manufactures who build specific models to cater to customers’ needs sections of Form PF are designated to qualifying advisers. All SEC-registered advisers with at least $150 million in private fund AUM must file. Those with less than $1.5 billion in hedge funds, $1 billion in liquidity funds and registered money market funds, or $2 billion in private equity funds are considered small. These advisers must file only once a year and within 120 days of the end of their fiscal year. Information provided by “small” private fund advisers is significantly less in comparison to “large” private fund advisers. Large hedge fund advisers must file within 60 days of the end of each fiscal quarter, large liquidity fund advisers within 15 days, and large private equity fund advisers within 120 days.

Safety First
The key to safety is having a structurally sound foundation. For a car, that would be a solid chassis. For the automated Form PF design, that would be staging tables. Much like the chassis of a car, properly thought out staging tables provide the framework for the rest of the process. These staging tables show us where to put data in order for the process to be as streamlined as possible. Luckily for us, the structure of these tables was provided by ConceptONE.

To illustrate the value of staging tables, let’s assume that a staging table missing a column is the same as a chassis missing the proper door mounts. In the case of the car, the assembly would stop there. The chassis would be noted as an exception and the proper course of action would be taken to fix the problem. Staging tables provide a similar function. If the next step in the process is to pull the data from the staging table but the column doesn’t exist, the code creates an exception report and stops execution.

“Take me home, country roads”
Cars don’t always have the luxury of smooth roads, just as we in the financial risk industry don’t always have the luxury of valid data. Until that glorious day when we do have valid data, something needs to be created to smooth out those “potholes” of data. Just as employees on the assembly line bolt on the suspension, the Form PF process bolts on validation.

Form PF’s validation is relatively complex: it requires validation on multiple inputs that may vary depending on the desired report. The backbone of the Form PF validation is metadata (provided by ConceptONE ). This information defines the required data and provides a list of valid inputs. Utilizing this information allows the process to accurately validate data and create exception reports in case “potholes” of data are encountered. Suspension helps keep a car running smooth on bumpy roads; validation helps keep the process running smooth when invalid data is encountered.

Vroom… Vroom…
The critical element in a car is the engine; for the Form PF process it is calculations. Just as an engine cannot function without gas, calculations cannot function without data. Based on specific questions, data is pulled from the staging tables into working tables where the calculations are performed. Like a computer chip in a car that regulates fuel consumption (to comply with regulations), a collection of calculation rules for Form PF serves the same purpose. The rules further subset the data to specify exactly which variables should be calculated and how they should be calculated for optimal Form PF reporting performance.

That New Car Smell
A car on the assembly line would probably be hard to recognize for any average Joe until it gets its body panels put on. The same can be said about the Form PF automation. If one were to look at the code and calculations, one would have a tough time guessing what the final product would look like. That’s where a nice and shiny output report comes in to play. Different sections of the Form PF report have to be filled out based on the type and size of the private fund adviser, just like different body panels are used for different models of a car.

While body panels are generally large and basic, the real details occur within the interior of the car. The output reports are comprised of the same idea. For example, direct input data (e.g., the seats of a car) is something that is pulled from a specific field multiple times that was never run through calculations and will probably never change. This can be information such as identification numbers or addresses. What about options like a sleek CD player or fancy navigation system? Just like these options, the output reports show information from specific calculations based on the desired result. There are plenty of ways to get a result, but only one way to get to the result that you need. And let’s be honest, you want that fancy navigation system.

“But why do they put the guarantee on the box?”
Source tracking plays an important role in the automation of Form PF reporting. Fortunately, source tracking is why customers keep coming back to the dealership (The Financial Risk Group / ConceptOne). It’s the “warranty” that ensures accuracy of the data in the staging tables loaded through the standardized data loader. Source tracking provides multiple reports that display input tables while also highlighting the pertinent columns associated with particular questions on Form PF.

The necessity of source tracking is especially evident when auditing data. Much like unknown malfunctions in a car, unknown errors can arise in data while updating, storing, and using it to complete Form PF. Source tracking provides accessibility to input data to help avoid fines and other potential punishments. Internal auditing is also made easier through source tracking. The “warranty” provides bumper to bumper coverage for as long as Form PF reports park in the Investment Adviser Registration Depository garage.