Corporate & Financial Weekly Digest

Corporate & Financial Weekly Digest

Category Archives: Private Investment Funds

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DOL Proposes 18-Month Extension of Transition Period for Compliance With ERISA Fiduciary Investment Advice Rule

Posted in Executive Compensation and ERISA, Investment Companies and Investment Advisers, Private Investment Funds
On August 31, the US Department of Labor proposed an 18-month extension of the full implementation of the Best Interest Contract Exemption and other related exemptions issued under the ERISA fiduciary rule.  Under existing guidance, a fiduciary may comply with the exemptions by adhering to an abbreviated set of requirements referred to as the “impartial… Continue Reading

SEC Increases Dollar Amount of the Net Worth Threshold Test for ‘Qualified Clients’ in Rule 205-3 Under the Investment Advisers Act of 1940

Posted in Investment Companies and Investment Advisers, Private Investment Funds
Section 205 under the Investment Advisers Act of 1940 generally prohibits a federally registered investment adviser (RIA) from receiving compensation based on a share of the capital gains on or appreciation of the assets of an advisory client (i.e., performance fees). Rule 205-3 under the Advisers Act provides an exemption from this prohibition for clients… Continue Reading

ESMA Updates Q&A on the AIFMD

Posted in EU Developments, Financial Markets, Private Investment Funds
On July 21, the European Securities and Markets Authority (ESMA) published an updated questions and answers (“Updated Q&A”) on the application on the Alternative Investment Fund Managers Directive (AIFMD). The Updated Q&A includes new information on reporting to national competent authorities and the calculation of the total value of assets under management (AUM), as discussed… Continue Reading

SEC Enforcement Action Signifies the Need for Investment Advisers to Adopt Written Expense Allocation Policies

Posted in Investment Companies and Investment Advisers, Private Investment Funds
On June 29, the Securities and Exchange Commission charged Kohlberg Kravis Roberts & Co. (KKR) with violations of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940, as amended, and Rule 206(4)-7 thereunder for the misallocation of broken deal expenses. The charge addressed KKR’s failure to disclose in its flagship funds’ offering materials… Continue Reading

ESMA Issues Call for Evidence on Virtual Currency

Posted in Banking, Derivatives, Digital Assets and Virtual Currencies, EU Developments, Financial Markets, Private Investment Funds
On April 22, the European Securities and Markets Authority (ESMA) issued a call for information (Call for Evidence) on virtual currency. Unlike recent studies performed by the European Banking Authority and HM Treasury, ESMA is not calling for comment on virtual currencies as a payment technology or alternative form of money. In particular, ESMA is… Continue Reading

ESMA Updates Q&A on the AIFMD

Posted in EU Developments, Financial Markets, Private Investment Funds
On March 26, the European Securities and Markets Authority (ESMA) published an updated questions and answers (Updated Q&A) of the application on the Alternative Investment Fund Managers Directive (AIFMD). The Updated Q&A includes updated and new questions and answers on reporting, notification, additional own funds and scope as discussed below.… Continue Reading

IRS Considers Whether Management Fees of an LLC Are Subject to Self-Employment Tax

Posted in Private Investment Funds
A recent response by the Internal Revenue Service Chief Counsel (CCA) to an inquiry from one of its field office agents addressed the question of whether management fees earned by an investment manager organized as a limited liability company (LLC) and allocated to its members—all individuals—were subject to self-employment tax. (The CCA response is not a… Continue Reading

FATCA Transitional Relief and Extension of Time for the Implementation of New Account Procedures for Entity Investors

Posted in Private Investment Funds
On May 2, the Internal Revenue Service issued a notice (Notice 2014-33) providing for a transition period for enforcing the withholding rules of the Foreign Account Tax Compliance Act (FATCA) and extending the period by which investment funds need to have FATCA procedures in place for entity investors. Pursuant to the notice: Years 2014 and… Continue Reading

Cayman Islands to Enter into a Model 1 IGA

Posted in Private Investment Funds
The Cayman Islands announced on March 15 that it intends to enter into a Model 1 Intergovernmental Agreement (IGA) with the Internal Revenue Service for Foreign Account Tax Compliance Act (FATCA) compliance purposes. Accordingly, hedge funds and private equity funds that operate in the Cayman Islands will not have to enter into FATCA agreements with… Continue Reading

FATCA Regulations Are Finalized

Posted in Private Investment Funds
On January 18, the Treasury Department issued final regulations under the Foreign Account Tax Compliance Act (FATCA). The final regulations incorporate the FATCA guidance that the Internal Revenue Service (IRS) has issued since proposed FATCA regulations were issued last February, as well as certain comments received regarding the proposed FATCA regulations.… Continue Reading

IRS Delays Implementation of FATCA Tax Reporting Rules

Posted in Private Investment Funds
The Internal Revenue Service this week released Announcement 2012-42 (the Announcement), which postpones until 2014 the need for foreign hedge funds and private equity funds to request Foreign Account Tax Compliance Act (FATCA) information and documentation from their investors. In effect, the IRS has delayed implementation of the FATCA tax reporting rules until 2014. The… Continue Reading

SEC Adopts Revised Net Worth Standard for Accredited Investors

Posted in Derivatives, Dodd-Frank Developments, Private Investment Funds, SEC/Corporate
Co-authored by James B. Anderson. On December 21, the Securities and Exchange Commission adopted an amendment to the accredited investor net worth standard under Regulation D of the Securities Act of 1933, as amended, to exclude the value of an individual’s primary residence from the $1 million net worth calculations used to determine whether such… Continue Reading

SEC Adopts Form PF

Posted in Private Investment Funds
On October 26, the Securities and Exchange Commission adopted Form PF, which it jointly designed with the Commodity Futures Trading Commission to collect systemic risk data about hedge funds and other private funds. The CFTC is expected to vote on adopting the form within the next week. While Form PF is not yet available, SEC… Continue Reading

SEC Raises “Qualified Client” Thresholds

Posted in Dodd-Frank Developments, Investment Companies and Investment Advisers, Private Investment Funds
On July 12, the Securities and Exchange Commission issued an order raising the thresholds for determining who is a “qualified client” for purposes of Rule 205-3 under the Investment Advisers Act of 1940. Rule 205-3 exempts an investment adviser from the prohibition against charging a client performance fees in certain circumstances, including when the client… Continue Reading

GAO Reports on the Feasibility of SRO for Private Fund Advisers

Posted in Dodd-Frank Developments, Investment Companies and Investment Advisers, Private Investment Funds
Co-authored by Maxwell Li On July 11, the U.S. Government Accountability Office (GAO) released a report on the feasibility of forming a self-regulatory organization (SRO) to provide primary oversight of private fund advisers. The report was part of a mandate by the Dodd-Frank Wall Street Reform and Consumer Protection Act to address the potential gap… Continue Reading

SEC Approves Proposed Rule Changes to FINRA Rule 5131

Posted in Broker-Dealer, Investment Companies and Investment Advisers, Private Investment Funds
The Securities and Exchange Commission has approved the Financial Industry Regulatory Authority’s proposed rule changes to Rule 5131 that delete paragraph (b)(1) and delay the implementation date of paragraphs (b) and (d)(4) until September 26. Removal of paragraph (b)(1) of Rule 5131, which would have required members to establish, maintain and enforce policies and procedures… Continue Reading