FASB adds disclosure rule for fund of funds

The US accounting standard setter added a new disclosure requirement for funds invested in underlying funds.

The Financial Accounting Standards Board (FASB) has proposed updates to its accounting standards requiring more disclosure from fund of funds.

The US accounting standards setter wants private funds to disclose information on underlying investments of any fund they invest in that exceeds 5 percent of their fund’s net assets.

The proposed accounting standards update: Financial Services – Investment Companies (Topic 946): Disclosures about Investments in Other Investment Companies, would also require a feeder fund in a master-feeder arrangement to provide the master fund’s financial statements along with its financial statements.

The news is important to fund of funds and GPs who set up intermediary fund structures for debt financing or fund structures that act as “blockers” in a portfolio investment.

FASB has proposed these changes as current Securities and Exchange Commission (SEC) guidance already requires a feeder fund that is regulated under the Investment Company Act of 1940 to provide the financial statements of its master fund along with its own financial statements.

“The amendments in this proposed update would require similar presentation for all feeder funds not regulated under the Investment Company Act of 1940, resulting in increased consistency and transparency into the master fund in all master-feeder arrangements,” said the proposal.

“In practice, most [GPs] already do this,” said a source close to FASB.