Treasury tells GPs to send more data
Private equity firms with certain cross-border US holdings must report data to US Treasury under an amended “TIC B-Form”. The form provides US officials a snapshot of cross-border claims and liabilities and short-term securities that Treasury uses to track how much money is coming in and out of the country and other macroeconomic research. Previously, the TIC-B form only applied to certain US depositary and banking institutions, bank holdings companies, and broker dealers. However, the rule was altered to now include “all other financial institutions” such as private equity funds, real estate funds and hedge funds. Monthly reports are due no later than 15 calendar days following the last day of the month. Quarterly reports are due no later than 20 calendar days following the last day of March, June, September and December.
Fed extends Volcker deadline
The Federal Reserve will grant banks two additional one-year extensions to come into compliance with Volcker Rule regulations that that apply to sponsorship interests in CLO products. The extensions will push the timeline for Volcker Rule compliance to 21 July, 2017. The Volcker Rule prohibits banks from proprietary trading and acquiring ownership interests or sponsoring private equity and hedge funds. The regulation also affects banks’ holdings in CLOs – securitized vehicles that are largely backed by commercial loans. Although securitized loans comprised of loans and related servicing assets are excluded from Volcker Rule regulations, many CLOs include debt securities that do not conform, according to the Fed. Banks must conform or divest interests and sponsorships of those CLOs by the end of the conformance period.
Europe adds EMIR reporting obligations
The European Market Infrastructure Regulation (EMIR) on over-the-counter derivatives requires GPs to report on each derivatives of foreign exchange contract or interest rate hedge within two days to a trade repository.The minimum details GPs must include are: the parties to the contract and the main characteristics (such as, type, underlying maturity, notional value, price and settlement date). EMIR is relevant for European fund managers because all funds authorized or registered under the Alternative Investment Fund Managers Directive (AIFMD), will be classified as financial counterparties under EMIR and will be subject to the full array of EMIR’s obligations.
GPs must also implement new risk management standards, including operational processes and margining for all bilateral over-the-counter derivatives.
AIFMD authorization due in July
GPs who must become authorized under the pan-European marketing regulation the Alternative Investment Fund Managers Directive (AIFMD) have until July 22 to do so. In the UK, Germany and France private fund advisors can submit AIFMD applications any time before the July 22 deadline and can continue operating even if regulators have not yet approved their request for authorization. But the regulator (the CSSF) issued guidance last month requiring all AIFMD applications to be submitted by April 1 in order to authorize all GPs by July.
Carbon rule deadline extended
The UK government extended the deadline for firms to surrender their fuel allowances by three months under the CRC Energy Efficiency Scheme. Firms that consume at least 6,000 MWh, or about £500,000 in annual electricity costs, will need to file annual carbon emissions reports by July 31 and buy carbon emission allowances by October 31. Compliance with the three year old carbon scheme has long been a source of concern for private equity firms in particular. The scheme used to require firms to aggregate all majority owned portfolio companies into one group when registering with the scheme, meaning liability and compliance risks would be shared amongst the entities grouped together. But GPs now have the option of disaggregating all of their portfolio companies on an individual basis, meaning those parties would participate with the scheme independently.
AIFMD reporting provisions gold-plated
Luxembourg’s securities regulator, the CSSF, has gone above and beyond the Alternative Investment Fund Managers Directive (AIFMD) reporting guidelines’ requirements. The CSSF will require fund managers to disclose their funds’ liquidity profiles, how funds measures risk, exactly how much leverage funds carry, and the number of transactions carried out using high-frequency algorithmic trading techniques. These requirements are not explicitly set out in the directive but in October pan-EU regulator, the European Securities and Markets Authority’s (ESMA), asked its national counterparts to consider adding these disclosures to their reporting frameworks. Luxembourg set January 31, 2015 as a deadline for annual filers and also for semi-annual filers. Fund managers filing quarterly reports must submit their information by October 31, 2014.
Dubai to ease fund regulations
Dubai’s free trade zone, Dubai International Financial Centre (DIFC), is bidding to become a competitive fund domicile by launching a regulation-lite fund regime for certain private funds. Its local regulator, Dubai Financial Services Authority (DFSA), published a consultation paper proposing a Qualified Investor Exempt Fund (QIEF) regime which would strip some of the jurisdictions fund regulations, but only for firm’s soliciting professional investors. The proposal requires a $1 million minimum investor subscription, with a maximum of 50 investors per fund, but would be “significantly less stringent” than current fund regulatory thresholds, according to the DFSA. The detailed specialist fund requirements in Dubai’s Collective Investment Rules (CIR) Module will not be applied to QIEFs. For instance, the DFSA would get rid of the current requirement for a custodian to hold the fund’s assets and only require regulatory reporting once a year as opposed to the current bi-annual regime.
GPs fret over disclosure requirements
Under proposed reforms, Australian superannuation funds will be required to publicly disclose information such as fees and costs payable by the fund and asset allocation percentages. In addition, every six months the supers will need to identify all of their direct or indirectly held assets and each asset’s current value on their website. The proposed reforms have yet to be finalized and other models are being considered. As such, industry trade body the Australian Private Equity and Venture Capital Association Limited would like to see the current deadline for the proposed reforms, July 1 2014, deferred.
VIE on path to reform
China’s Variable Interest Entity (VIE) structure, which is used for foreign investment in restricted sectors, looks like it’s on the path to reform, according to Paul Gillis, professor of practice, Guanghua School of Management at Peking University, speaking at PEI’s Asia Forum 2014 in Hong Kong. Foreign investors must use a VIE structure to invest in China’s lucrative but restricted sectors such the internet, including ecommerce and education, and many Chinese companies listed in the US use a VIE. Although there have been justifiable concerns that the VIE structure is not enforceable at a recent Ministry of Commerce meeting, officials raised the point that a VIE contract does not fall under antitrust rules, which could open the door to making these structures more viable for investors, he said.