Investment Advisers Act of 1940
RESPONSE OF THE OFFICE OF THE CHIEF ACCOUNTANT
|Deloitte & Touche LLP|
By letter dated August 2, 2006, you, on behalf of certain accounting firms1, request our assurances that we would not recommend enforcement action to the Commission under Section 206(4) of the Investment Advisers Act of 1940 (the "Advisers Act") and Rule 206(4)-2 thereunder against any "newly registered hedge fund adviser"2 if the investment adviser, for purposes of complying with the adviser custody rule,3 relies on an audit of a limited partnership, limited liability corporation or other pooled investment vehicle (collectively, "hedge fund") by an accountant that has performed non-audit services for, or had certain relationships with, the hedge fund audit client or its affiliates, including the adviser, that would preclude the accountant from being independent under the Commission's independence rules,4 provided that (a) those services or relationships would not impair the accountant's independence under independence standards that were applicable to an audit of a hedge fund prior to registration by the adviser, and (b) those services or relationships prohibited by the Commission's independence rules cease no later than June 30, 2007.
The adviser custody rule requires the adviser to, among other things: (1) maintain client funds and securities with a qualified custodian; (2) provide certain information to clients concerning the arrangement with the qualified custodian; and (3) send (or have the qualified custodian send) account statements to clients on a quarterly basis.5 In lieu of distributing quarterly account statements, a hedge fund adviser may arrange for an annual audit of the hedge fund and distribute the audited financial statements to the hedge fund's investors within 120 days of the end of the hedge fund's fiscal year ("audit exception").6 The audit exception specifically requires the accountant to be independent in accordance with the Commission's independence rules.7
Based on the facts and representations in your letter, and without necessarily agreeing with your analysis, we would not recommend enforcement action to the Commission under Section 206(4) of the Advisers Act and Rule 206(4)-2 thereunder against any newly registered hedge fund adviser,8 if the adviser, for purposes of rule 206(4)-2(b)(3):
Our conclusions and relief do not provide any assurance on an accountant's overall independence status with a hedge fund or its newly registered investment adviser. Any different facts or conditions might require a different conclusion. Should you have questions, please call James D. Campbell, Assistant Chief Accountant, or me at 202-551-6918.
Very truly yours,
Brian D. Bullard
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