March 16, 2020
Item 1: General Identifying Information
a. How big is the fund in terms of net asset value? (This may be expressed in a range, for example, $40 million - $50 million.)
under $1 million
b. What is/are the principal investment strategy/strategies of the fund? Discretionary Macro
c. Does the fund use derivatives transactions (as defined in the proposed rule) to pursue the funds principal investment strategy/strategies?
Yes
d. Is the fund part of a fund complex?
No
e. Please include any additional general identifying information that you wish to provide, that could add context for your other feedback on the proposal.
Item 2: Derivatives Risk Management Program
a. The proposed derivatives risk management program requirement would include the following seven elements. In the following chart, please indicate which of the proposed program elements you think would be the most expensive for the fund to implement and which would be least expensive to implement, by ranking the following elements from one (1) most expensive through seven (7) least expensive using each number only once. If you have any comments about the factors informing your analysis, please include.
a) Risk identification and assessment
b) Risk guidelines
c) Stress testing
d) Backtesting
e) Internal reporting and escalation
f) Periodic review of the program
g) Board reporting and oversight
b. Implementation timing.
1.) How many months do you think it would take the fund to adopt and implement a derivatives risk management program (check one box)?
Greater than 24 months
2.) If the response above is more than 12 months, what would help to shorten that time period?
The regulatory complexity is not only overwhelming for most small-mid sized funds, but the compliance requirements to implement such a policy would be financially infeasible for many market participants.
3.) Please provide any explanatory notes that you would like to include.
The requirements to properly implement this policy would also restrict countless market participants from continuing to participate across countless products in publicly traded markets, resulting in liquidity shortages across a variety of financial products that are currently being traded by a broad spectrum of individual and institutional participants.
c. Implementation cost.
1.) Approximately how much do you think it would cost the fund to implement a derivatives risk management program (in terms of combined internal and external costs) (check one box)? $350,001 - $500,000
2.) Please include any explanatory notes that you would like to provide. These could describe, for example, how a fund that is part of a fund complex might share these costs, any particular cost considerations for a fund that uses sub-advisers, or the extent to which the estimated costs would arise from internal versus external costs (such as those associated with third-party service providers).
d. To the extent that the fund is a sub-advised fund, would any of the proposed program elements present any particular challenges for the fund to implement in light of its advisory structure? If so please explain.
Item 3: Limit on Fund Leverage Risk
a. Does the fund currently use VaR testing? Yes
b. Implementation cost.
1.) If you anticipate that, if the proposed rules were adopted, the fund would have to comply with the VaR testing requirement, approximately how much do you think it would cost the fund to implement the proposed VaR test requirements (in terms of combined internal and external costs) (check one box)? Greater than $75,000
2.) Please include any explanatory notes that you would like to provide. These could describe, for example, how a fund that is part of a fund complex might share these costs, any particular cost considerations for a fund that uses sub-advisers, or the extent to which the estimated costs would arise from internal versus external costs (such as those associated with third-party service providers).
c. Use of relative VaR test and absolute VaR test.
1.) Would the fund anticipate that it would use the proposed relative VaR test or the proposed absolute VaR test (check one box)?
Absolute VaR test
2.) If you anticipate that you would use the proposed relative VaR test, and you already disclose a benchmark index for performance disclosure, do you anticipate that the index would also qualify as a designated reference index under the proposed rule?
No
d. To the extent that the fund is a sub-advised fund, would the proposed limit on fund leverage risk present any particular challenges for the fund to implement in light of its advisory structure? If so please explain.
Item 4: Limited Derivatives Users
a. Please state which basis for the proposed limited derivatives user exception you think the fund would seek to rely on (check one box):
Exposure-based test (The funds derivatives exposure does not exceed 10% of the funds net asset value)
b. Should the rule include any other bases for a fund to qualify as a limited derivatives user? What alternative approach and why?
Speculators, as market participants, provide additional liquidity to publicly traded products, which supply the demand that is created by participants hedging their underlying risk to the derived product. By restricting speculation across derivatives markets, it will limit the total available liquidity across those markets as a whole.
c. Implementation cost.
1.) Approximately how much do you think it would cost the fund to adopt and implement policies and procedures reasonably designed to manage its derivatives risks (in terms of combined internal and external costs) (check one box)?
Greater than $100,000
2.) Please include any explanatory notes that you would like to provide.
Item 5: Recordkeeping
a. Approximately how much would it cost the fund to comply with the proposed recordkeeping requirements associated with rule 18f-4 (in terms of combined internal and external costs)?
$125,000
b. Should we modify any of the proposed recordkeeping requirements, and if so, how?
Remove them from the proposed policy.
Item 6: Reporting Requirements
a. Approximately how much would it cost the fund to comply with the proposed new requirements for reporting on Form N-PORT, Form N-CEN, and Form N-RN (in terms of combined internal and external costs)?
On the low end, it would cost in excess of $350,000
b. Should we modify any of the proposed reporting requirements, and if so, how?
Yes. The entire policy proposal is unnecessary.
Item 7: Other Feedback on Proposed Rule 18f-4 and Proposed New Reporting Requirements
Please include any other additional suggestions or comments about proposed rule 18f-4, and/or the proposed new reporting requirements, that you would like to provide