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Remarks to the Practising Law Institute, Private Equity Forum

Speech

Remarks to the Practising Law Institute, Private Equity Forum

 
 

Norm Champ

Director, Division of Investment Management

New York, NY

June 30, 2014

Introduction

[1]Thank you, Yukako, for that kind introduction.  Good morning everyone and before I begin, let me remind you that the views I express are my own and do not necessarily reflect the views of the Commission, any of the Commissioners, or any other colleague on the staff of the Commission.

It is great to be here in New York, and an honor to give the keynote at the 15th Annual Practising Law Institute, Private Equity Forum.  Today I am pleased to join my former law firm colleague, Yukako Kawata, someone with whom I worked with for many years in the firm’s Investment Management and Private Funds Group.  Thank you, Yukako, for inviting me to speak today.  If there is time once I’ve finished my remarks, I will be happy to take questions from the audience.

I worked in and around the private fund industry for over twenty years before joining the Commission more than four years ago.  I thoroughly enjoyed my time in the fund industry working with smart, highly motivated people dedicated to creating innovative investment strategies to meet the ever-evolving demands of investors.  This morning I join you speaking from a regulator’s perspective.  The view may be different from this side of the podium, but one thing remains the same, I still work with smart, highly motivated people who are equally dedicated; dedicated to carrying out the Commission’s mission to protect investors, maintain fair, orderly, and efficient markets and facilitate capital formation.  Every one of us in the Division of Investment Management is committed to fulfilling this mandate.  Just this month, we honored individuals and teams in the Division with the Chair’s Honorary Awards for their outstanding contributions to the Commission.  Nearly 200 staff, possessing a deep understanding and mastery of the more traditional work of the Division and an increasing expertise in specialized financial services, such as alternative mutual funds, are committed to also carrying out the Division’s critical mission to protect investors, promote informed investment decisions, and facilitate appropriate innovation in investment products and services through regulation of the asset management industry.  

Throughout my career I have witnessed the unique role private funds, and investment advisers to private funds, play in the innovation of investment products with strategies designed primarily to meet the investment objectives of sophisticated investors, such as large institutions and high net worth individuals.  Recently, investment strategies that have historically operated in the private fund space have started to appear in the mutual fund area.  This morning I will discuss the growing use of alternative investment strategies by open-end mutual funds; a burgeoning industry that had over $300 billion in assets as of the end of May 2014, according to Enforcement’s Risk Analysis and Surveillance Team.

I will discuss three broad topics: (1) alternative mutual funds, (2) the potential benefits and risks associated with these funds, and (3) some new developments within the Commission and the Division regarding alternative mutual funds.  Throughout these topics, I hope to emphasize two central themes: (i) the dialogue between outside stakeholders and the Division in continued consideration of these funds; and (ii) the importance of monitoring and managing the risks associated with these funds.  In my opinion, the interplay of these two concepts drives both the investment management industry and the Division’s oversight function.

Alternative Mutual Funds

The success of American traditional mutual funds is truly remarkable, and can be attributed to many factors.  To me, this success is largely due to the ongoing applicability of a regulatory framework enacted nearly 75 years ago.  This framework, while unbending in its core investor protection concepts such as mitigating conflicts of interest, has also proven flexible enough to permit the continued innovation required to meet the changing needs and demands of investors.

A timely, textbook example of the continued flexibility of this framework is the rise of mutual funds utilizing alternative investment strategies.  There has been a growth in both the size of this industry and the number of these products, driven by the investment strategies of private funds. 

What is an alternative mutual fund?  While there is no clear definition of “alternative” in the mutual fund space, an alternative mutual fund is generally understood to be a fund whose primary investment strategy falls into one or more of the three following buckets: (1) non-traditional asset classes (for example, currencies), (2) non-traditional strategies (such as long/short equity positions), and/or (3) illiquid assets (such as private debt).  These investment strategies generally seek to produce positive risk-adjusted returns (or alphas) that are not closely correlated to traditional investments or benchmarks.  These investment strategies differ from those of traditional mutual funds that historically have pursued long-only strategies in traditional asset classes.

As I mentioned earlier, the alternative mutual fund market had over $300 billion in assets as of the end of May.  Although alternative mutual funds only accounted for 2.3% of the mutual fund market as of December 2013, the inflows into these funds in 2013 represented 32.4% of the inflows for the entire mutual fund industry, with almost $95 billion of inflows into alternative mutual funds in 2013.  That is over five times more than the amount of inflows into alternative mutual funds in 2012.[2]

What are the reasons for this growth in the alternative mutual fund market?  We are seeing a growing interest in the retail market for funds that offer distinctive investment returns.  Managers of alternative mutual funds are disclosing that they are seeking to pursue investment strategies which are not closely tied to traditional benchmarks or asset classes.  These investment strategies, traditionally only accessible to investors in private funds, are now being made more widely available through alternative mutual funds.  The asset flow towards alternative mutual funds and their strategies may be due to several factors, for example, increased demand for enhanced yield because of the current (and historically) low interest rate environment, or a response to the recent, past volatility in the financial markets resulting in the demand for positive risk-adjusted investment returns. 

Growth in the interest in alternative mutual funds fueled by investor demand may also be due to several factors including many of the characteristics that differentiate these open-end funds from their private fund counterparts.  Among these factors may be: (1) investment liquidity, (2) portfolio transparency, (3) lower advisory fees, (4) lower investor minimum requirements, and (5) lack of minimum eligibility requirements.  Because mutual funds must calculate and report their respective net asset values daily, alternative mutual funds allow investors daily accessibility to, and pricing of, their investments.  Further, alternative mutual funds are required by the Investment Company Act of 1940 (the “’40 Act”)[3] to honor all investor requests to redeem shares, adding to the liquidity of these funds from an investor’s perspective, one of the reasons these funds are sometimes referred to as “liquid alternative funds.”  Alternative mutual funds are also required by the ’40 Act to fulfill regulatory reporting and disclosure obligations that make them more of a transparent investment vehicle for investors than private funds.  Further, alternative mutual funds have significantly lower fee structures than the traditional hedge fund standard of “2 and 20” (2% management fee and 20% performance fee).[4]  Finally, alternative mutual funds do not have the qualified investor hurdles and investment minimums required by hedge funds, allowing for broad access to these investment strategies by retail investors.

Potential Risks

Now that we have briefly touched upon some of the distinctions arising from the migration of private fund strategies into the ’40 Act framework, I would like to dive into some of the potential risks that the Division of Investment Management considers in fulfilling its mission to protect investors of registered investment companies utilizing these alternative investment strategies. 

We have seen two primary avenues for launching alternative mutual funds recently: first, managers of more traditional registered investment companies are launching their own alternative registered investment companies sometimes using one or more private fund managers as sub-advisers, and, second, private fund managers are launching their own registered investment companies.  Both of these structures have their own unique benefits and risks; however, I would like to highlight today a few key ’40 Act issues that are raised by both structures.  I will offer some observations on how to approach the regulatory issues associated with valuation, liquidity, leverage and disclosure.

Valuation

When calculating their net asset values, mutual funds must determine the value of their assets, including the value of the derivatives or illiquid assets that they hold.  The ‘40 Act specifies how mutual funds must determine the value of their assets.  Under the ’40 Act, all funds (other than money market funds), must calculate their net asset values by using the market values of their portfolio securities when market quotations for those securities are “readily available.”  When market quotations for a fund’s portfolio securities or other assets are not readily available, the fund must calculate its net asset value by using the fair value of those securities or assets, as determined in good faith by the fund’s board of directors. [5]   

There is no single methodology for determining the fair value of a security or other asset because fair value depends upon the facts and circumstances of each situation.  As a general principle, however, the fair value of a security or other asset held by a fund would be the amount that the fund might reasonably expect to receive for the security or other asset upon its current sale.  When determining the fair value of a security or other asset held by an alternative mutual fund, all indications of value that are available must be taken into account.[6]  One key to effective valuation is the development of robust valuation policies and procedures.  Issues that alternative mutual fund managers may consider addressing in their policies and procedures include: (1) the requirement that the fund monitor for circumstances that may necessitate the use of fair value prices, (2) the provision of a methodology by which a fund determines fair value, (3) the process for price overrides, (4) assurance that controls are in place to review, monitor and approve all overrides in a timely manner, and (5) the prompt notification to, and review and approval by, persons not directly involved in portfolio management to mitigate conflicts of interest.[7]


Liquidity

One of the key differences between mutual funds and private funds is that mutual funds are generally obligated to satisfy investor redemption requests within seven days of the request.[8]  Mutual funds should maintain a high degree of liquidity to assure that portfolio securities and other assets can be sold, and the proceeds used to satisfy redemptions in a timely manner.  Under the guidelines the Division set forth in 1992, open-end funds (other than money market funds) should not hold more than fifteen percent of their net assets in illiquid securities and other illiquid assets.  For purposes of these guidelines, a portfolio security or other asset is illiquid if it cannot be sold or disposed of in the ordinary course of business within seven days at approximately the value ascribed to it by the fund.  Funds that exceed these limits should not invest in other illiquid securities or assets until they no longer exceed the limits.  When a fund’s illiquid securities or assets represent a larger percentage of the fund’s net assets, the fund should consider appropriate steps to protect its ability to make timely payments for shareholder redemptions and other obligations. 

There is a close relationship between the liquidity of a portfolio security or asset and the ease with which the security or assets may be valued.  Significant holdings of securities that are fair valued by alternative mutual funds may raise concerns regarding the liquidity of such holdings, including the process for testing and monitoring liquidity for purposes of complying with the ’40 Act liquidity limitation.  Accordingly, Division staff generally believes that alternative mutual funds should consider setting criteria for assessing the liquidity of a security and consider including those criteria in written policies and procedures for registered fund compliance programs under the ’40 Act. [9]  The ultimate responsibility for determining the liquidity of a fund’s portfolio securities and other assets rests with the fund’s board of directors.  However, the board may delegate the day-to-day function of determining the liquidity of the fund’s portfolio securities and other assets to the fund’s investment adviser, provided that the board retains sufficient oversight.  Among the factors that an alternative mutual fund may want to consider in assessing a portfolio security’s liquidity are: (1) the frequency of trades and quotations for the security; (2) the number of dealers willing to purchase or sell the security and the number of other potential purchasers; (3) dealer undertakings to make a market in the security; and (4) the nature of the security and the nature of the marketplace in which it trades.  These liquidity issues are particularly important if the alternative mutual fund discloses that it is pursuing a strategy that focuses on illiquid securities such as distressed debt securities.

In addition to the factors mentioned above, I believe that our January 2014 Guidance Update on “Risk Management in Changing Fixed Income Market Conditions” may also provide some assistance to investment advisers of alternative mutual funds in pointing out additional steps that they may consider taking when investing fund assets in illiquid assets other than the fixed income securities specifically mentioned in the Guidance Update. 

Leverage

Alternative mutual funds must comply with the ‘40 Act’s limitation on borrowing and its prohibition of open-end funds issuing senior securities, as defined by the ’40 Act.  One of the primary goals of the ’40 Act is to protect mutual fund investors from excessive borrowings, since leverage could, as stated in 1940, “increase unduly the speculative character” of mutual funds.[10]  The ’40 Act restrictions on borrowings act as a practical limit on the amount of leverage and provide assurance that investment companies operate with adequate reserves.[11]  Through a series of Commission releases and staff no-action letters and other guidance, mutual funds have been permitted to enter into certain derivative instruments if a mutual fund places liquid assets in a segregated account to “cover” the potential obligation imposed by such investments. 

As many of you know, the Commission issued a concept release in 2011 on mutual funds’ use of derivatives.  We recognize that many derivatives transactions present both benefits and risks associated with leverage.  While derivatives transactions enable a fund to participate in gains and losses on an amount that exceeds the fund’s initial investment, the incurrence of contingent obligations through derivatives could result in significant payment obligations in the future.  We continue to study the comments we received and are considering next steps.To address some of the risks associated with leverage used by alternative mutual funds, investment advisers may want to consider taking some additional steps when engaging in derivatives transactions.  These advisers may want to consider putting in place a risk management framework linked to their funds’ use of derivatives, which may include assessing the impact of various market conditions on the funds with respect to their use of derivatives. 

Disclosure

Promoting informed investment decisions with respect to the sometimes complex investment strategies employed by alternative mutual funds requires a focus on clear, concise disclosure.  A mutual fund is required to disclose its principal investment strategies, including the types of securities and alternative assets in which the fund invests or will invest.  Further, a fund is required to disclose the principal risks of investing in the fund, including the risks to which the fund’s portfolio as a whole is expected to be subject and the circumstances reasonably likely to adversely affect the fund’s net asset value, yield or total return.

In July 2010, Division staff in the Disclosure Review and Accounting Office provided some observations about the then-current derivatives-related disclosures by investment companies in registration statements and shareholder reports.[12]  Among other things, the staff primarily observed that some funds provided generic disclosures about derivatives that may be of limited usefulness for investors in evaluating the anticipated investment operations of the fund, including how the fund’s investment adviser actually intends to manage the fund’s portfolio and the consequent risks associated with such management.

Division staff continues to closely focus on alternative investment disclosure, generally, and derivatives disclosure, specifically, and where appropriate, provide comments, including referencing the July 2010 letter.  In addition to the July 2010 letter our August 2013 Guidance Update discussing “Disclosure and Compliance Matters for Investment Company Registrants That Invest in Commodity Interests” serves as good measuring stick on how the Division views disclosure and compliance matters relevant to funds that engage in alternative investment strategies and invest in alternative assets[13].

Division staff is looking at data about the actual use of alternative investment strategies (including the use of derivatives) versus what has been disclosed in fund disclosure documents and learning what funds are really doing to achieve their stated investment objectives.  Staff generally believes that all funds that use or intend to use alternative investment strategies should assess the accuracy and completeness of their disclosure, including whether the disclosure is presented in an understandable manner using plain English.  Further, any disclosure of principal investment strategies related to alternative investment strategies generally should be tailored specifically to how a fund expects to be managed and should address those strategies that the fund expects to be the most important means of achieving its objectives and that it anticipates will have a significant effect on its performance.  In determining the appropriate disclosure, a fund generally should consider the degree of economic exposure the alternative investment strategy creates, in addition to the amount invested in that strategy.  A fund should also generally consider the accuracy and completeness of marketing materials related to its investment objectives and performance.

Staff also generally believes that the risk disclosure in the prospectus for each fund should provide an investor a complete risk profile of the fund’s investments taken as a whole, rather than a list of various investment strategies, and reflect anticipated alternative investment or asset usage.  We note that alternative investments, including derivatives, may introduce risks in addition to those associated with investments in the cash markets, and that funds intending to use such strategies generally should address those risks in their disclosures where the information is material to investors.  An alternative mutual fund should, for example, disclose material risks relating to volatility, leverage, liquidity and counterparty creditworthiness that are associated with trading and investments in alternative investment strategies, such as derivatives, that are engaged in, or expected to be engaged in, by the fund.

Finally, staff generally believes that a fund should assess on an ongoing basis the completeness and accuracy of alternative investments-related disclosures in its registration statement in light of its actual operations.  In particular, a fund generally should assess, based upon its actual operations, whether it is meeting the requirements to completely and accurately disclose its anticipated principal investment strategies and risks.  A fund generally should review its use of alternative investment strategies, including derivatives, when it updates its registration statement annually and assess whether it needs to review the disclosures in its registration statement that describes its principal alternative investment strategies and risks. 

Directors’ Obligations / Board Oversight

Now, I would now like briefly to discuss the role that the directors, and particularly independent directors, play in the oversight and compliance programs of alternative mutual funds. 

Generally, a fund board has an obligation to review and approve a Fund’s compliance program under the rules of the ’40 Act.[14]  It is also incumbent upon, and essential that, an investment adviser to an alternative mutual fund provide the board with sufficient and appropriate information to execute the board’s statutory and fiduciary obligations.  The fund board should know its ’40 Act obligations to continue to review and approve the fund’s policies and procedures to ensure they are reasonably designed to prevent violations of the federal securities laws, and in particular the policies and procedures used with regard to the ’40 Act areas previously discussed, such as valuation, liquidity, leverage, and disclosure.  Further, directors may want to consider monitoring potential conflicts of interest that may affect alternative mutual funds.  By “conflicts of interest” I mean, in the case of the side-by-side management of an alternative mutual fund and a private fund with the same sub-adviser and with similar investment objectives, there are fair allocations of trades by the sub-adviser between the alternative mutual fund and its private fund counterpart that charges performance fees payable to their sub-adviser.  Finally, boards should take care that, when naming alternative mutual funds, their names are not misleading.[15]  For example, in our November 2013 Guidance Update discussing “Fund Names Suggesting Protection From Loss,” we encouraged any fund that exposes investors to market, credit, or other risks, and whose name suggests safety or protection from loss, to reevaluate its name and to consider changing its name as appropriate, to eliminate the potential for investor misunderstanding.  Further, in accordance with the ‘40 Act, if an alternative fund’s name suggests a focus in a particular type of investment, the fund needs to have a policy to invest at least 80% of its assets in that investment.

OCIE / IM Guidance Updates

2014 National Exam Program

Others at the Commission are focused on these issues as well.  The Commission’s National Exam Program 2014 examination priorities for investment advisers and investment companies include issues such as conflicts of interest and fund marketing and performance.  Under the auspices of the Investment Adviser/Investment Company Program and through conducting presence exams, the Commission staff will continue to examine a significant percentage of the advisers who have been registered with the Commission for more than three years, but have not yet been examined by the National Exam Program.

OCIE Risk Alert

Another new development is the recent Office of Compliance Inspections and Examinations (“OCIE”) Risk Alert regarding investment adviser due diligence processes for selecting alternative investments.[16]  My colleague, Drew Bowden, Director of OCIE, recently described the Risk Alert by saying that money continues to flow into alternative investments, as such OCIE believed that it was important to assess investment advisers’ due diligence processes for selecting alternative investments and to promote compliance with existing fiduciary duty requirements, including the duty to ensure that such investments or recommendations are consistent with client objectives.[17]

OCIE National Sweep of Alternative Mutual Funds

Recently, my colleagues in OCIE announced that the Commission will conduct a national sweep exam of alternative mutual funds, indicating that the Commission will target fifteen to twenty fund complexes in its first phase, which is likely to begin this summer or fall.  The sweep will focus on some of the issues I’ve highlighted above:  liquidity, leverage and board oversight of alternative mutual funds.  These exams will produce valuable insight into how alternative mutual funds attempt to generate yield and how much risk they undertake, in addition to how well boards are carrying out their oversight duties.  We look forward to their findings.

Division of Investment Management Guidance Updates

One of the goals of these OCIE alternative mutual fund sweep exams is to ensure that alternative mutual funds are complying with the ’40 Act; however, the exams will also allow Commission staff to identify areas where it believes fund managers may need additional guidance.  Issuing Guidance Updates has been one of the focuses of the Division of Investment Management’s efforts in 2014.  Guidance Updates are a meaningful vehicle for enhancing our communications with the public and addressing a range of disclosure, regulatory, and compliance matters, by setting out the staff’s views on a particular matter in a timely and transparent way.  The Division issued 14 Guidance Updates during 2013 and 8 so far in 2014.

As you may have seen, the Division’s Guidance Updates cover a broad variety of topics, including those that may be pertinent to investment advisers of alternative mutual funds such as the 2013 disclosure and the 2014 fixed income markets Guidance Updates I mentioned earlier.  Just last week Division staff issued two Guidance Updates.  The first is an update on “Guidance Regarding Mutual Fund Enhanced Disclosure”[18] to further the Commission’s goal of clear and concise, user-friendly disclosure related to the Commission’s enhanced mutual fund disclosure amendments adopted in 2009.  The second Guidance Update is on “Private Funds and the Application of the Custody Rule to Special Purpose Vehicles and Escrows”[19] regarding how the Advisers Act custody rule[20] applies when advisers to pooled investment vehicles, particularly private equity funds, utilize: (1) special purpose vehicles when making investments and (2) escrow accounts when selling interests in portfolio companies.  We expect to continue issuing Guidance Updates when appropriate topics are identified and in continuation of our mission, and I encourage you to follow our web site for new postings.  I would also encourage you to contact the staff if you have ideas about any investment management areas that would benefit from greater clarification, and if you would like to provide any further feedback regarding issued Guidance Updates.  We hope that the Guidance Updates encourage a dialogue with the staff, and we welcome input from all of our stakeholders, including investors, industry participants, and others.   

We see Guidance Updates as meaningful communications representing staff thinking on discrete issues, not as substitutes for the established rulemaking, exemptive application and No-Action processes.  In a former life, I served as a General Counsel and Chief Compliance Officer and advised on investment management regulatory matters in both the in-house and outside counsel roles.  In those roles, I found that guidance from the Commission and its staff was extremely beneficial in making the right calls and promoting a culture of compliance.  I appreciate that interpretive ambiguity is costly; both in terms of time and money spent consulting with regulatory professionals, and can also have a dampening effect on progressing innovative ideas.  We see the Guidance Update process as another avenue to remove uncertainty and enhance the public’s understanding of the staff’s view on critical issues to investors and the industry.

Conclusion

As my predecessor, Buddy Donohue, once said, “we all have been handed a legacy.”  Whether you are new to the mutual fund market or an established fund complex, you have inherited a longstanding yet flexible regulatory framework and a legacy of collaboration that is the foundation of an industry envied around the world.  The responsibilities of anyone entrusted with the leadership of the Division of Investment Management include the preservation of this legacy of hard work and dedication to carry out the mission of the Division.  I hope I have been able to convey a sense of the dynamism currently at work in the Division to fulfill its mission in an ever-changing investment strategy landscape, and the serious commitment the staff of the Division has to the important work we do in the service of the investing public.

I encourage you to keep up our dialogue.  Please continue to approach me and the staff with your thoughts for areas where our guidance may be helpful, and continue to develop the innovative ideas that will meet the new challenges faced by investors in the twenty first century.

Thank you very much.



[1] I would like to thank my colleague, Richard Rodgers, for providing invaluable assistance in preparing these remarks.  The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner.  This speech expresses the author’s views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.

[2] Based on staff analysis of Morningstar DirectSM open-end mutual fund data.

[3] 15 U.S.C. 80a.  All statutory references to the Investment Company Act are to 15 U.S.C. 80a, and, unless otherwise stated, all references to rules under the Investment Company Act are to Title 17, Part 270 of the Code of Federal Regulations [17 C.F.R. 270] (“’40 Act”).

[4] “Alternative mutual funds” refers to open-end mutual funds registered under the ‘40 Act.  Certain closed-end funds registered under the ‘40 Act and business development companies, which are a category of closed-end fund, but not registered under the ’40 Act, have different regulatory requirements, including, but not limited to the ability to charge performance fees, leverage, and liquidity.

[5] See § 2(a)(41) of the ’40 Act.

[6] See Accounting for Investment Securities by Registered Investment Companies, Investment Company Act Release No. 6295 (Dec. 23, 1970), 35 FR 253 (Dec. 30, 1970), available at http://www.sec.gov/rules/interp/1970/ic-6295.pdf.

[7] See Compliance Programs of Investment Companies and Investment Advisers, Investment Advisers Act Release No. IA-2204 (Dec. 17, 2003), available at http://www.sec.gov/rules/final/ia-2204.pdf.

[8] See § 22(e) of the ’40 Act.

[9] See id. rule 38a-1.

[10] Id. at  § 1(b)(7).

[11] See Securities Trading Practices of Registered Investment Companies, Investment Company Act Release No. 10666 (Apr. 18, 1979) 44 FR 25128 (Apr. 27, 1979), available at http://www.sec.gov/divisions/investment/imseniorsecurities/ic-10666.pdf.

[12] See Derivatives-Related Disclosures by Investment Companies, Letter from Barry D. Miller, Associate Director, Division of Investment Management, U.S. Securities and Exchange Commission, to Karrie McMillan, General Counsel, ICI (July 30, 2010) (the “July 2010 letter”), available at http://www.sec.gov/divisions/investment/guidance/ici073010.pdf.

[13] See Disclosure and Compliance Matters for Investment Company Registrants That Invest in Commodity Interests, IM Guidance Update 2013-05 (Aug. 2013),  available at  http://www.sec.gov/divisions/investment/guidance/im-guidance-2013-05.pdf

[14] See rule 38a-1 of the ’40 Act.

[15] See id. rule 35d-1.

[16] See Investment Adviser Due Diligence Processes for Selecting Alternative Investments and Their Respective Managers, available at http://www.sec.gov/about/offices/ocie/adviser-due-diligence-alternative-investments.pdf.

[17] See id.

[18] Guidance Regarding Mutual Fund Enhanced Disclosure, IM Guidance Update No. 2014-08 (June 2014), available at http://www.sec.gov/investment/im-guidance-2014-08.pdf.

[19] Private Funds and the Application of the Custody Rule to Special Purposes Vehicle and Escrows, IM Guidance Update No. 2014-07, available at, http://www.sec.gov/investment/im-guidance-2014-07.pdf.

[20] See rule 206(4)-2 of the Investment Advisers Act [15 U.S.C. 80b].


Last modified: July 7, 2014