OFR Working Paper Finds Problems with Form PF

Steven Lofchie Commentary by Steven Lofchie

An Office of Financial Research working paper concluded that "Form PF submissions may obscure reporting funds' actual risks". The paper examined the precision of the SEC's Form PF as an instrument for measuring market risk exposures. The SEC requires private fund investors to use Form PF to report regulatory assets under management.


The questions in Form PF that require firms to provide important financial information are poorly drafted - so much so that the results derived from answering these questions are useless. Notwithstanding the serious though not unsurprising conclusion of the OFR Report (i.e., that the "Form PF submissions may obscure reporting funds' actual risks"), the notion that the OFR had to conduct a scientific study to determine the "precision" (or the absence thereof) of the results of Form PF is at best, problematic and wasteful.

The financial industry likely spent hundreds of millions of dollars to develop procedures to provide the government with the information required by Form PF. There is nothing wrong with the government wanting more information about the financial system. What is wrong is the seeming carelessness with which the government imposes its demand for that information, without regard for the costs or the benefits of meeting that demand.

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