Happy Birthday, Form N-PORT!

Date: October 12, 2017

birthday cakeIt seems like only yesterday that the SEC finalized the rules for Investment Company Reporting Modernization and the Investment Company Liquidity Risk Management Program, yet in reality that momentous day was about one year ago. While the compliance date is still eight months away, the time between now and the first filing is likely to move just as fast as the previous 12 months since the rules were finalized. Despite some hope that the final rule will be delayed or even cancelled due to the election of Donald Trump or a spirited request on the part of the ICI, the industry has been working diligently over the past 12 months. With continued effort over the next eight months, we should all be in good shape to hit that first filing date.

Data is the Thing

While working with our clients over the past year, we confirmed our pre-rule research that data is the thing. People care about e-filing and form calculation, but those components are regarded as low-risk commodities. The real value is data and how to deal with it. Data has been and continues to be everyone’s focus. On the data side of the house, we have seen the market segment readiness into four consecutive phases. Well, mostly consecutive phases. While there is a lot of overlap, each has a distinct time frame for completion running in sequence.

Phase One – Data Management and Filing Systems

Phase one involved selecting a data management and filing system. The early timing of this phase was driven largely by the third-party administrators who need tangible evidence of readiness as they make the case downstream to their clients, but also because the data management system is a prerequisite for the other phases. By the start of Q3, most filers had their selection in mind, and by the end of Q3, the majority had completed their purchase and closed the books on their data management and filing system.

Phase Two – Information on Hand

Phase two is working with what you could call “free” content; content that administrators have on hand now. It is made up of information held internally or that will be provided by current service providers – holdings, trial balance, returns, collateral, sec lending, fair value designations. The information will need to be repurposed for Form N-PORT, but filers won’t need to figure out where to get it. Because it is more or less on hand, and because it constitutes the bulk of the reporting, putting free content to good use is the second phase. Most notable in this phase is working with upstream systems to ensure the data exists in a usable format. Filers are currently organizing, inventorying, relating, and otherwise working on how they are going to use existing content in a new way. This activity will continue all the way through the end of the first test filing period in December and possibly on into the first quarter of 2018.

Phase Three – Paid Content

Phase three involves securing paid content, or at least part of the paid content. Content that is not used today by the back-office team like data enrichment and risk metrics will need to be received from a new provider. There is still some uncertainty as to who will provide this information to the filer. Will it be the administrator, the filer, or the advisor? All signs are pointing to the filer, which is most often the fund’s administrator, acquiring this information. But as of yet, things are uncertain. You can expect some clarity in the fourth quarter of this year, with decisions still being made into early Q2 2018.

Phase Four – Liquidity

Phase four, the final stage in the data readiness process, deals with liquidity. While we often think of liquidity as merely Form N-PORT Item C.7, Liquidity Risk Management is much bigger than Form N-PORT. Liquidity categories will be determined by the advisor either on their own or via a liquidity provider. Even if a liquidity provider is selected, a facts and circumstances analysis must still be performed by the advisor, the settings of the liquidity tools must be set, and the monitoring and program administration will need to be covered. Between the added complexity and the extra six months of available prep time, I doubt those decisions will be made by most of the market until Q3 of next year.

Happy Birthday!

One year into the Form N-PORT era and it is startling to think of all the progress we have made. A lot of work has been completed, a lot of certainty gained, concrete plans are in place, and efforts are moving at pace, all of which should give us comfort about our chances for success. A happy birthday all the way around.

To learn more about 13f-2 watch our webinar replay Part 1: Unpacking the SEC's New Disclosure Rules for Shareholders
Join us for Part 2: Operationalizing the SEC's New Disclosure Rules, for Shareholders on December 12.