February 25, 2011
25 February 2011
United States Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549-1090
Re: Release No. IA-3145 (File No. S7-05-11): Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF
Ladies and Gentlemen:
We respectfully submit this letter in response to a request by the Securities and Exchange Commission (the Commission or SEC) for comments regarding the referenced proposing release. Akina Limited is a private equity fund of funds adviser, with four larger funds, and three single-investor funds (all are private funds), and weve been registered as an investment adviser with the Commission since 2005.
As a fund of funds adviser, we generally invest a minimum of 80 per cent of each private fund in underlying private equity funds, managed by others. The remainder of the assets we advise are invested in direct investments, all of which involve at least one additional co-investor as lead investor, and which often may include several co-investors. We are located in Zurich, and many of our investors are located in Europe and regions other than the United States. All of our investments are in companies located in or near Europe. However, U.S. residents account for as much as half of assets in some of the funds we advise.
Based upon our reading of the proposed rule, and our understanding of the underlying purposes of the new Form PF, we have the following comments and suggestions regarding the proposals:
1. We recommend that the final rule express clearly how to calculate the amount of assets advised, so a firm can determine whether its a large private equity fund adviser (Large Adviser) for the regime of enhanced, quarterly, reporting. Will an adviser be required to include any fund of fund assets (i.e. investments in underlying funds)? Is the methodology for calculation of AUM affected by other factors: i.e. whether the underlying private fund is itself a registered adviser or exempt from registration under the Advisers Act, or from reporting under the Form PF scheme, or whether the assets advised are beneficially owned by non-US persons?
2. We also recommend that the final rule consider the above points regarding the nature and scope of the investment or borrowing data that must be disclosed on the Form PF, separate from the determination of whether a firm falls within the definition of a Large Adviser. For example, will the Form PF require an adviser to report regarding assets owned by foreign individuals, or investments in underlying foreign private equity funds?
3. We recommend that the rule make allowance for the different timing of reports of investment balances provided by the underlying private funds, which provide information on different time schedules pursuant to individually negotiated contracts that allow up to 120 days to provide fund reports to the investor. Alternatively, we would suggest that the rule allows a registrant to report based on the previous quarters data in cases where underlying funds do not timely provide holding or investment reports to the adviser investor.
4. We note that perhaps the proposed rule can be modified to exclude certain assets from the reporting data or the calculation of Large Adviser, in such cases where an investment adviser can affirm in writing that the information is either provided by another entity already, e.g. the fund investment or the lead investor in a direct investment, or that the underlying entity is otherwise exempt or excluded from reporting.
5. We recommend that regarding direct investments, which in our case comprise around 20% of our investment adviser activity, the lead co-investor is, alone, required to report on the capital structure of the target investment company regarding the corresponding debt or other financial metrics on behalf of all co-investors for any particular tranche or syndication of debt. We note that duplication of this information from multiple reporting entities serves no useful purpose. In each case of direct investment we find ourselves alongside co-investors, which in some or all cases may be reporting about some or all of the same transactions in which we co-invest.
6. Further, we suggest that the Commission coordinate with bank regulators to determine and collect the same capital structure information elicited from private equity investors in the proposed rule. We feel that since banks are already monitored regarding this data, banks provide the optimal primary source of this kind of information, and banks may already be providing the same or similar data to federal regulators, the SEC should coordinate where practicable with sister regulatory agencies which can obviate the need for further reporting on this aspect of the private equity investment activity.
7. We recommend that treatment be even-handed across the entire investment industry, and that the final rule apply to entities that operate in an identical capacity to the role played by private equity advisers, i.e., the vast number of pensions, foundations, endowments or family offices, all of which provide a source of capital indistinguishable from the type of direct investment we provide. Particularly because most such investors are located within the U.S., and not the least to avoid possible challenges on equitable grounds, we feel this information collected in the Form PF should include reports by such entities, whether or not organized and registered as investment advisers or exempt from registration.
To varying degrees, we believe all of the above recommendations further the purported aims of the Commission, the intent of the proposed rule, and the mandate of the Dodd-Frank legislation, i.e. to avoid undue burdens on regulated entities, to collect complete and accurate information from the most direct sources possible, as efficiently as possible to monitor such collected data and coordinate with guardians of the capital markets to secure the stability of the financial system, and to collaborate with registered advisers to reasonably accomplish such objectives.
Very truly yours,