This is the January, 2018 post in my series on biggest hedge funds by regulatory assets under management. There is no specific hedge fund data in this post – I will follow-up in a week or so with a listing taking advantage of some of the features discussed below.
The SEC has made a major revision to its Form ADV. The last revision was October 2012, we are now using October 2017. The bad news for me is that I have to re-write all my scraping scripts AND I have to accommodate the fact that some filings are using the old form and others use the new. It will take about a year for everyone to cycle on to the new version. Currently, approximately 25% of RIAs are filing using the Form ADV October 2017 Version.
The good news is that we can finally get some insight into hedge funds’ Separately Managed Accounts (SMAs). For the uninitiated, SMAs are typically used by large clients. In simple terms, the client opens and funds an account with a prime broker. The client and the fund manager enter into a trading agreement giving the manager a limited power of attorney to trade the account on behalf of the client. The manager then implements the agreed strategy using the funds in the account in accordance with the trading agreement. Wikipedia has a comprehensive description.
I thought for this post I would simply walk through the changes in Form ADV, using examples from the current filings from Blackrock, Bridgewater, and Millennium. Bridgewater’s filing is from August, 2017 using the October 2012 Version of Form ADV, so I use it to show what the form used to look like. Blackrock (filing date: November 22, 2017) and Millennium (filing date: December 4, 2017) are both using the October 2017 Version.
Each section heading below refers to a main section of the form (usually entitled “Item N …”), with sub-sections for each major question or set of questions.
Item 1: Identifying Information
We will take a look at some of the changes under Item 1 first. There are a couple of images covering questions A – E, N, and O from both Bridgewater and Millennium. Then there are some narrative sub-sections pointing out the differences.
Here is what Bridgewater’s Item 1, questions A – E, N and O:
Compare that with Millennium’s filing:
Question B(2): Umbrella Filing
This is a new question and it opens up a whole bunch of useful information about related advisors. If this box is checked you know that there is one master filing being made on behalf of a group of related Registered Investment Advisor companies. If this box is checked, a Schedule R will be included, where identifying information on each relying advisor is presented.
Schedule R amounts to a mini version of Items 1, 2, 3 and Schedules A, and B (direct and indirect ownership) for each relying advisor.
Question D: SEC Registration
Look at Question D and Question N for Bridgewater and compare them to Question D and Question N for Millennium – the SEC has simply moved the location for reporting CIK# from N to D(3).
Question F(5): Total Offices
In this new question, the filer must report the total number of offices in addition to the main office. You cannot see this in any of the images above.
Question O: Advisor Assets
The SEC is asking for more granularity on the manager’s balance sheet in the new version of Form ADV. In this question, assets does NOT mean regulatory assets under management, it means balance sheet assets from their financial statements. The new form asks which of three buckets you are in $1 – 10bn, $10 – 50bn, and $50bn plus. Obviously there is a fourth implied bucket less then $1bn.
Item 2: SEC Registration
Question A(3) about having a principal place of business in Wyoming has gone.
Item 5: Employees, Clients, and Compensation
Question D: Client Profile
There has been a major reorganization of Item 5 question D – the one most of my hedge fund AUM posts are about. Let’s take a look at the old version using Bridgewater’s filing:
Compare that to Millennium’s filing using the Form ADV October 2017 Version:
The major changes are as follows:
- Filers are now required to specify the actual count (if 5 or more) and the dollar value of each type of client. In the past they specified percentage buckets. So now there is much more granularity.
- Filers are required to disclose number of client accounts, even when less than 5, for Investment companies, business development companies, and pooled investment vehicles. Again, much more granularity.
- Sovereign wealth funds have been added as a separate category (often they would be reported under “other” before).
Overall this question is much easier to read now with better information.
Question F: Regulatory AUM
In the new form, the SEC wants to know the regulatory AUM from foreign investors. The first form is the 2012 version, the second is the 2017 version:
Questions I and J: Wrap Fees and Investment Types
In keeping with the general theme, the new form provides more granularity. Comparing Bridgewater and Millennium:
Question K: Separately Managed Accounts
This section opens the door on the best change to the Form ADV: the disclosure of separately managed account information. It is an entirely new question. Blackrock’s filing is a good example:
Notice that answering “Yes” to any of the 4 questions requires additional disclosures in a new section of Schedule D. It’s a little confusing that there are 4 questions and 3 sections in Schedule D. So if you answer “yes” to question 5K(4) you then have to complete Schedule D Section 5K(3). A one-to-one correspondence would have been nice!
For details see “Schedule D” below.
Let’s look at what is in each of the new parts of Schedule D for Blackrock:
Section 5K(1) Separately Managed Accounts
Filers with over $10bn regulatory AUM in SMAs fill out section (a), while those under $10bn fill out section (b). Section (b) is similar to section (a) except there is no mid-year section. Blackrock completes section (a):
Not only do we get a breakdown by asset type in aggregate across SMAs, we also get a mid-year and year-end breakdown so we can see how allocations have changed over time.
Section 5K(2) Separately Managed Accounts – Use of Borrowings and Derivatives
This table is all about the levels and types of borrowing and derivatives exposure the firm is running. Filers over $10bn regulatory AUM complete section (a), those between $500m and $10bn complete section (b).
In section (a), the table is organized into three rows each with increasing levels of leverage. For each level of leverage, the filer reports the form of leverage or derivatives being used. There are mid-year and year-end sections.
In section (b), a filer is not required to go into so much detail. Only borrowings are required, not derivatives, and only for year-end data.
This information could be very valuable from a competitive view point.
Section 5K(3) Custodians for Separately Managed Accounts
Finally we get some vendor information regarding custodians. If I were State Street I would be pushing Blackrock to even up my allocation of custodial assets with BNY Mellon!
So there you have it! Lots of extra information is available in the new Form ADV October 2017 Version.
If you see ways in which compilations of this kind of information can help in your competitive strategy or market research, don’t hesitate to reach out – I am always happy to talk.
Image: From pixabay Creative Commons, no attribution required.
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