Investor demand for access to illiquid investments in a registered fund wrapper continues to increase. BBD is the auditor and tax advisor for many interval funds and tender offer funds. Based on our experience with funds utilizing these increasingly popular structures combining elements of open-end and closed-end funds, we offer significant insight regarding key audit and tax issues unique to these funds.
In recent years, we have seen an increase in the popularity of interval funds. Interval funds are hybrid products that contain characteristics of both open-end and closed-end funds. Like open and closed-end funds, they are registered under the Investment Company Act of 1940 and generally take subscriptions daily, although some interval funds may take subscriptions less frequently than daily.
Many advisers of registered products, including mutual funds and closed-end interval funds, invest in private alternative investments as part of their portfolio strategy. And generally, they are permitted by the Investment Advisers Act of 1940 to do so. While mutual funds are restricted to investing up to 15% of net assets in illiquid securities, there are no such restrictions for interval funds.
Auditors of public registrants, including investment companies, are subject to regular inspection by the PCAOB. Information about the results of an audit firm’s PCAOB inspections serves as a direct indication of the quality of a firm’s audits and should be evaluated when considering an audit firm. Inspection reports can help inform you about how an auditor performs on specific audits and in high-risk areas across audits.
In the history of the PCAOB’s inspections of BBD, no audit deficiencies have been identified. We are very proud of this accomplishment and our commitment to the quality of our work, particularly because the great majority of our competitors, including those outside the Big Four, do not share this same distinction.
It’s also very important to note that because our public company clients include only those in the investment management industry, each audit reviewed as part of the PCAOB’s inspection process applies to investment company accounting. This increased scrutiny gives our clients further comfort with our control environment and audit process.
The PCAOB completes inspections of our Firm every three years. Our most recent inspection was completed in the Fall of 2020. Our most recent available inspection report, dated February 28, 2022, can be found here.
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At BBD, we survey our clients regularly. Monitoring and measuring the value of the BBD client experience on a consistent basis helps us to make improvements that have immediate impact.
The results of our surveys confirm that our clients value collaboration and partnership as much as we do, and that we are delivering on our commitment.
Our values drive everything we do at BBD and differentiate us in the commoditized world of audit and tax services. BBD's professionals are passionate about the distinct industries we serve; authentic in our relationships and communication with our clients; and collaborative in navigating our clients' challenges. Our commitment to living these BBD core values enables us to deliver an exceptional client experience. We're setting the PACE for client experience quality.