Articles Posted in

Published on:

By

On September 22, 2010, the Managed Funds Association submitted initial comments to the Securities and Exchange Commission and the Commodity Futures Trading Commission on regulatory topics under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The MFA’s comments reflected concerns that the broad wording of the Dodd-Frank Act would result in certain provisions being inappropriately applied to private investment funds. To address these concerns, the MFA proposed that:

  • the SEC not create a self-regulatory organization to oversee investment advisers;
  • the SEC and the CFTC adopt guidance clarifying the criteria relevant to determining whether an investment adviser or a CTA that is registered with one of the agencies can rely on the relevant exemption from registration with the other agency;
  • strong confidentiality safeguards be put in place to protect proprietary information of private fund advisers provided to the SEC or CFTC;
  • appropriate implementation periods be provided to allow market participants time to adjust to any change in the definitions of “accredited investor” or “qualified client;”
  • the SEC define “accredited investor” to include “knowledgeable employees” of a private investment fund and amend Rule 3c-5 under the Investment Company Act of 1940 to expand the types of employees who can qualify as “knowledgeable employees” under that Rule;
  • the SEC and CFTC define “Security-Based Swap Dealer” (“SSD”) to exclude those market participants who are not in the business of buying and selling securities as well as those who buy and sell for their own account;
  • the SEC and CFTC exclude swap customers from SSD registration and regulation with respect to their cleared security-based swaps;
  • in setting capital requirements for non-bank Major Security-Based Swap Participants (“MSSPs”), the SEC and CFTC count collateral posted by such non-bank MSSPs towards any capital requirements;
  • position limits not be imposed on swaps;
  • the SEC not apply rules prohibiting incentive-based compensation to advisers of private investment funds;
  • the SEC retain the existing reporting periods under Section 13(d) and Section 16(a) of the Securities Exchange Act of 1934; and
  • the SEC not impose a new standard of conduct for investment advisers with retail customers.
Published on:

By

The Securities and Exchange Commission has published its schedule for adopting rules to implement the Dodd-Frank Act. The proposed timetable for adopting rules related to the oversight of investment advisers and exempt offerings is as follows:

October – December 2010

  • §§404 and 406: Propose (jointly with the CFTC for dual-registered investment advisers) rules to implement reporting obligations on investment advisers related to the assessment of systemic risk
  • §§407 and 408: Propose rules implementing the exemptions from registration for advisers to venture capital firms and for certain advisers to private funds
  • §409: Propose rules defining “family office”
  • §410: Propose rules and changes to forms to implement the transition of mid-sized investment advisers (between $25 and $100 million in assets under management) from SEC to State regulation, as provided in the Act
  • §418: Propose rules to adjust the threshold for “qualified client”
  • §413: Propose rules to revise the “accredited investor” standard
  • §926: Propose rules disqualifying the offer or sale of securities in certain exempt offerings by certain felons and others similarly situated

January – March 2011

  • §913: Report to Congress regarding the study of the obligations of brokers, dealers and investment advisers
  • §914: Report to Congress regarding the need for enhanced resources for investment adviser examinations and enforcement
  • §919B: Complete study of ways to improve investor access to information about investment advisers and broker-dealers

April – July 2011

  • §§404 and 406: Adopt rules (jointly with the CFTC for dual-registered investment advisers) to implement reporting obligations on investment advisers related to the assessment of systemic risk
  • §§407 and 408: Adopt rules implementing the exemption from registration for advisers to venture capital firms and to certain advisers to private funds
  • §409: Adopt rules defining “family office”
  • §410: Adopt rules and form changes to implement the transition of mid-sized investment advisers (between $25 and $100 million in assets under management) from SEC to State regulation, as provided in the Act
  • §418: Adopt rules to adjust the threshold for “qualified client”
  • §413: Adopt rules to revise the “accredited investor” standard
  • §926: Adopt rules disqualifying the offer or sale of securities in certain exempt offerings by certain felons and others similarly situated
Published on:

By

Written by Michael Wu and Judy Deng

Most of the “RMB fund” structures currently being used to enable non-Chinese investors to participate in private equity and venture capital investments in China are tax driven.  However, some fund managers are using a RMB fund structure that is not designed to address a particular tax issue, but instead is designed to enable non-Chinese investors to participate in investments in China that, as a regulatory matter, are generally only available to domestic Chinese investors.

At this time, non-Chinese investors may only invest in certain “encouraged” or “permitted” sectors of China’s economy (e.g., the high tech, equipment manufacturing and new materials industries).  Although the Ministry of Commerce’s Foreign Investment Department is expected to increase the number of sectors that are “encouraged” or “permitted,” the extent of such increase and the time frame within which such increase will occur remain unclear.

In order to enable non-Chinese investors to participate in other sectors of China’s economy, some fund managers have utilized a China parallel fund structure.  Unlike a U.S. parallel fund structure, which generally involves two funds that invest side by side, on a pro rata basis, in the same assets, a China parallel fund structure generally involves two funds – one formed outside of China for non-Chinese investors and one formed in China for Chinese domestic investors – that each invest in assets that are not available to the other fund.

The offshore fund would typically receive an option to participate in investments made by the domestic fund in the sectors reserved for domestic Chinese investors and the domestic fund would receive an option to participate in investments made by the offshore fund in companies domiciled outside of China (which due to currency control issues may not be attractive to the domestic fund).  If the restricted sectors subsequently become available to non-Chinese investors as a result of a revision to the foreign investment catalogue by the Ministry of Commerce’s Foreign Investment Department, the offshore fund would presumably exercise the option and participate in any gains that had accrued since the option was granted.  The parallel fund structure, therefore, potentially allows non-Chinese investors to gain immediate access to sectors that are not yet “encouraged” or “permitted” but that are expected to eventually be opened to non-Chinese investors.

By
Posted in: Uncategorized
Tagged: China and Private Equity
Published on:
Updated:
Published on:

By

Written by Judy Deng

On September 5, 2010, the China Insurance Regulatory Commission (CIRC) issued a circular (“CIRC Circular 79”) to explicitly permit China’s insurance companies to invest their assets in private equity. Such investments may be either direct or indirect, making China’s insurance companies potential equity investors in onshore industrial companies as well as limited partners in onshore private equity funds (known as “RMB funds”).

In direct investment projects, the portfolio companies are required to be growth-stage, mature or strategic new-industry companies or what are considered “pre-IPO” companies.

In the case of indirect investments (i.e., investments in private equity funds), there are detailed requirements as to the qualifications of the target private equity firms, including minimum registered capital (RMB100 million), management team (10 experienced managers), exit history (3 exits) and pre-investment assets under management (RMB3 billion). The aggregate investment in any one private equity fund may not exceed 20% of the fund’s total offering size.

CIRC Circular 79 also clarifies that outbound equity investment by Chinese insurance companies is governed by a 2007 regulation.

By
Posted in: Uncategorized
Tagged: China and Private Equity
Published on:
Updated:
Published on:

By

Bloomberg reports that the SEC is engaged in a probe of investment advisers who invest client assets in hedge funds, funds of funds, private equity, venture capital and other alternative investments. The SEC’s Office of Compliance Inspections and Examinations has recently requested that advisers provide extensive information about their alternative investments, particularly in regards to the due diligence processes used when evaluating alternative investments. A copy of the letter sent by the OCIE to examined advisers and the accompanying information request list is available here.

“This is further evidence of the SEC’s more proactive approach to the hedge-fund industry,” said Jay Gould, a partner at Pillsbury Winthrop Shaw Pittman LLP in San Francisco. “Hedge-fund managers, including funds of funds, can expect the agency to take a greater interest in their policies, practices and their relationships with investors and other fund managers.”

Published on:

By

As we have previously discussed here, the Securities and Exchange Commission adopted significant changes to Part 2 of Form ADV. Among other things, the new Part 2 requires greatly expanded disclosure presented in a narrative, plain English format. The California Department of Corporations has now also adopted the new Part 2, effective October 12, 2010, thereby subjecting California-registered investment advisers to these same disclosure requirements. Compliance dates for California investment advisers are as follows:

  • As of January 1, 2011 all new investment adviser applicants will have to file the new Part 2 of Form ADV as part of their application.
  • As of January 1, 2011 all licensed investment advisers will need to incorporate the new Part 2 of Form ADV with their next filing of an amendment to Form ADV, or their annual updating amendment to Form ADV.
  • Between October 12, 2010 and January 1, 2011 applicants and currently licensed investment advisers filing amendments to their Part II of Form ADV may use either the current Part II or the new Part 2.
Published on:

By

In its first regulation implementing the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities and Exchange Commission announced today its adoption of a temporary rule requiring municipal advisors to register with the SEC by October 1, 2010.

“Municipal advisors” are persons who provide advice to a state or local government regarding municipal derivatives, guaranteed investment contracts, investment strategies or the issuance of municipal securities. The term is also defined to include persons who solicit business for these advisory services from a state or local government on behalf of a third party broker, dealer, municipal securities dealer, municipal advisor or investment adviser.

Municipal advisors must register with the SEC by completing and submitting new Form MA-T, which requires a municipal advisor to disclose certain basic identifying and contact information concerning its business, indicate the nature of its municipal advisory activities, and supply information about its disciplinary history and the disciplinary history of its associated municipal advisor professionals. Municipal advisors must amend the form whenever any identifying or contact information or disciplinary information has become inaccurate in any way.

Form MA-T and the Municipal Advisor Temporary Registration website can be accessed through the SEC’s website. Given the need to obtain an ID and password prior to submitting Form MA-T, it is recommended that municipal advisors begin the registration process immediately.