John Braun

Recent Posts

Hedge Fund Start-Ups: GAAP Departure Out of the Gate

Posted by John Braun on Jun 25, 2021 1:25:00 PM

Hedge funds can incur start-up costs called organization and offering costs. Oftentimes, the treatment of these costs for Generally Accepted Accounting Principles in the United States (GAAP) purposes can cause headaches during the audit process. The key to avoiding this particular headache is understanding the issue and then coordinating with your auditor on a plan of action during the organization of the fund.

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Starting a Private Fund? We're Answering Your Questions About Audits.

Posted by John Braun on Jun 9, 2021 11:38:53 AM

We often have conversations with portfolio managers who have experience managing a portfolio in a large shop and decide to break away and start their own investment advisory business. Many of these managers have an interest in launching their own pooled investment vehicle, often a product that they have been working “on the side.”

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Rule 2a-5: Let's Work Together

Posted by John Braun on Feb 5, 2021 7:34:00 PM

On December 3, 2020, the SEC voted to approve Rule 2a-5 (the “Rule”) to address valuation practices and the role of the Board of Directors for registered investment companies and business development companies relative to the fair value of investments. The new Rule is meant to modernize existing SEC regulations that have not been comprehensively addressed by the SEC for 50 years. BBD has summarized the Rule in a previous post.

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Fund Annual Reports Made Simple: 11 Key Changes in the SEC's Proposed Filing and Disclosure Modernization

Posted by John Braun on Nov 23, 2020 12:37:09 PM

Update: Don't miss our Webcast on this topic, in partnership with Morgan Lewis and SEI, on December 15!

On August 5, 2020, the Securities and Exchange Commission issued a rule proposal to modernize the disclosure framework specific to mutual funds and exchange-traded funds (collectively referred to herein as “funds”). The general premise of the proposed rule is that different presentations are useful to different audiences relating to a fund’s reporting of operations and offerings. More specifically, while the traditional methods of providing full financial statements and a prospectus to shareholders may be useful to investment professionals and institutional investors, the average investor finds this information clumsy and confusing and would rather have more limited and graphical information focused on items such as the performance and expenses of the fund. In fact, it would not surprise most in the industry to find out that most retail investors are not engaging in a detailed review of the financial statements or offering documents.

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Recoupment of Expense Waivers for Multi-Class Funds

Posted by John Braun on Sep 16, 2020 4:38:00 PM

Many funds employ expense limitation agreements aimed at limiting the expense exposure for shareholders. Generally, an expense limitation agreement is based on the fund’s expense ratio (expenses / net assets) and computed each day so that on any single day a fund’s shareholders will not experience an expense ratio in excess of that specified in the expense limitation agreement with the fund’s advisor. These agreements effectively act as an enticement for potential shareholders to invest in a developing fund by offering a guaranteed maximum expense exposure. Absent this type of agreement, the developing shareholder base would likely be subjected to higher expenses as the fund attempts to build assets.

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The Next Evolution of Fair Value: The SEC’s Proposed Rule 2a-5

Posted by John Braun on May 28, 2020 12:53:45 PM

An Auditor’s Perspective for Boards of Directors/Trustees

In April, the SEC released proposed Rule 2a-5 under the Investment Company Act of 1940, which addresses valuation practices and the relative role of the Board for registered investment companies and business development companies. The proposal looks to be another “catch-up” by the SEC to account for the growing complexity of valuations and the evolution of developments that have taken place with respect to accounting and auditing regulations.

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Valuing Private Investments in Mutual Funds and Interval Funds

Posted by John Braun on Apr 24, 2020 6:31:00 PM

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.

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Fulcrum Fees: An Imperfect Solution For Active Managers?

Posted by John Braun on Mar 30, 2020 5:57:21 PM

Fulcrum fee arrangements have been used by certain actively traded registered funds for years but are of late garnering increased attention as active managers attempt to stave off passive investing and the lower fee structure often associated with it. The concept aligns the interest of the advisor with that of the investor by rewarding the advisor when it outperforms its benchmark and reducing the fees of the advisor (to that of an index fund-like fee or even zero) when it underperforms its benchmark.

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The SEC's Proposed Rule 2-01 Auditor Independence Updates: Do These Modifications Do The Trick?

Posted by John Braun on Feb 12, 2020 6:53:00 PM

On December 30, 2019, the SEC proposed amendments to certain independence requirements with the goal of further aligning the auditor’s independence analysis with Rule 2-01’s “reasonable investor” concept.  The concept asks us to consider whether a reasonable investor with knowledge of all the relevant facts and circumstances would conclude that the auditor is capable of exercising objective and impartial judgment?

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PCAOB Auditing Standard AS 2501- Auditing Accounting Estimates, Including Fair Value Measurements

Posted by John Braun on Nov 8, 2019 1:03:00 PM

The new standard (AS 2501), which is effective for fiscal years ending on or after December 15, 2020, replaces three existing standards relative to auditing accounting estimates. While this replacement implies that much of the content already existed, the PCAOB has adopted this standard because the use of complex accounting estimates and fair value measurements continues to grow. Their oversight activities have revealed a pattern of audit deficiencies in these areas of the audit that are also often some of those areas with the greatest audit risk.

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