Private Funds

Financial Stability Board Issues Asset Management-Related Policy Recommendations

On June 22, 2016, the Financial Stability Board (FSB) published for public consultation Proposed Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities. The document sets out 14 proposed policy recommendations to address the following structural vulnerabilities from asset management activities that could potentially present financial stability risks:

  1. Liquidity mismatch between fund investments and redemption terms and conditions for fund units;
  2. Leverage within investment funds;
  3. Operational risk and challenges in transferring investment mandates in stressed conditions; and
  4. Securities lending activities of asset managers and funds.

The key recommendations for liquidity mismatch and leverage focus on both public and private funds.

The FSB reported that it “intends to finali[z]e the policy recommendations by the end of 2016, some of which will be operationalized by the International Organization of Securities Commissions (IOSCO).”

CFTC Announces the Start of Mandatory Clearing

On March 11, the CFTC announced that swap dealers, major swap participants, and private funds active in the swaps market are required to begin clearing certain index credit default swaps and interest rate swaps that they entered into on or after March 11.  The clearing requirement applies to newly executed swaps and changes in the ownership of a swap.  CFTC Release.

Final Rules Affecting Private Fund Advisers Adopted Under the Dodd-Frank Act

On June 22, 2011, the Securities and Exchange Commission (the “SEC”) adopted final rules and rule amendments implementing the provisions of Title IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) through the issuance of two Releases. Release IA-3222 (the “Exemptions Release”) defines terms and addresses certain issues with respect to the new exemptions from registration provided to investment advisers. Release IA-3221 (the “Implementing Release” and, together with the Exemptions Release, the “Releases”) implements companion amendments to the Investment Advisers Act of 1940 (the “Advisers Act”).

The exemption provided by Section 203(b)(3) of the Advisers Act (the “Private Adviser Exemption”), on which many advisers to “Private Funds” have relied, was repealed by the Dodd-Frank Act, effective July 21, 2011. As anticipated, the SEC granted relief to such advisers by providing, pursuant to new subsection (e) of Rule 203-1, that such an adviser is “exempt from registration with the [SEC] as an investment adviser until March 30, 2012,” provided that such adviser satisfies conditions which closely follow the requirements of the Private Adviser Exemption. This Alert provides an overview of how the new exemptions will be interpreted under the Exemptions Release and implemented under the Implementing Release.

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CFTC and SEC Proposed Rules on Reporting by Investment Advisers

On January 26, the CFTC and the SEC proposed new rules to implement provisions of the Dodd-Frank Act to assist the Financial Stability Oversight Council in its assessment of systemic risk. The proposed SEC rule would require SEC-registered investment advisers that advise private funds to file Form PF with the SEC. The proposed CFTC rule would require commodity pool operators and CFTC-registered commodity trading advisors who are also SEC-registered investment advisers that advise one or more private funds to satisfy certain proposed CFTC filing requirements by filing Form PF with the SEC. Comments on the proposed rules must be submitted within 60 days after publication in the Federal register. SEC Rule.