From: Spencer, Donald [DonaldS@sigulerguff.com]
Sent: Thursday, September 12, 2002 12:39 PM
To: 'rule-comments@sec.gov'
Subject: File No. S7-28-02

September 11, 2002

       Re: SEC File No. S7-28-02; Comments on Proposed Rule Amendment

 

Gentlemen and Ladies:

Thank you for the opportunity to comment on the Commission’s proposed changes 
to Rule 206(4)-2 under the Investment Advisers Act of 1940. Siguler Guff 
Advisers, L.L.C. (“Siguler Guff”) is a registered investment adviser. A 
portion of Siguler Guff’s business consists of acting as general partner or 
managing member of so-called “funds-of-funds” – pooled investment vehicles 
(organized as limited partnerships or limited liability companies) that 
invest clients’ assets in independently managed venture capital, buyout or 
other private equity funds.

Siguler Guff welcomes the proposed amendment to the custody rules contained 
in Section 206(4)-2(b)(2), excepting from the custody requirements pooled 
investment vehicles that prepare and distribute audited financial statements 
to their clients. However, for the funds-of-funds it manages, Siguler Guff 
will probably be unable to meet the requirement of the proposed rule that 
audited financials be distributed within 90 days of the end of the fund-of-fund’s 
fiscal year. This is because a fund-of-funds can prepare its audited financial 
statements only after it has received audited financial statements from each 
underlying private equity fund held in its portfolio.

The industry standard requirement for most private equity funds that make direct 
investments (i.e., that are not funds-of-funds) is delivery of audited financial 
statements to investors (including fund-of-fund investors) within 90 days of 
year-end. In practice, most private equity funds use nearly all of the 90-day 
period before delivering audited financial statements to investors. As a result, 
a fund-of-funds usually cannot complete its audited financial statements within 
90 days of year end. 

We suggest that the Commission modify proposed Section 206(4)-2(b)(2) to provide 
that a pooled investment vehicle that is a fund-of-funds may distribute audited 
financial statements to its investors within 120 days of the end of its fiscal 
year. We suggest that a “fund-of-funds” be defined as a pooled investment vehicle 
that invests more than 50% of its assets in pooled investment vehicles managed by 
entities that are independent of the management of the fund-of-funds.

An extended period for a fund-of-funds to prepare and distribute financial 
statements is narrowly targeted to accommodate a unique administrative issue 
inherent to a fund-of-fund’s audit process. We believe that adaptation of the 
Commission’s proposal to accommodate this issue is consistent with the client 
protection goals of the custody rules.

                                 Respectfully submitted,

 

                                 Donald P. Spencer
                                 Managing Director, Siguler Guff Advisers, L.L.C.