Interval Funds - Calibration in Valuation Models

Posted by James Kaiser on Apr 3, 2020 4:24:34 PM

As many portfolio managers look to launch alternative investment strategies, we have seen a growing interest in the interval fund structure.  An interval fund is a hybrid of an open-end mutual fund and a closed-end mutual fund.  Similar to an open-end fund, an interval fund accepts subscription dollars and issues shares at net asset value on a regular basis, often daily.  However, they generally only offer to repurchase shares at net asset value quarterly.  These infrequent repurchases allow interval funds to hold less liquid assets compared to traditional open-end mutual 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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COVID-19 and Financial Statement Disclosures

Posted by James Kaiser on Mar 25, 2020 10:30:59 AM

The Coronavirus pandemic (“COVID-19”) is causing significant financial and operating hardships across all industries. Any companies that are currently preparing GAAP financial statements, including investment companies, should consider whether or not the impact of COVID-19 represents a significant event as defined in FASB Accounting Standards Codification (“FASB ASC”) 855, Subsequent Events.

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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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Blog Post Written By Lori Ehleben Featured In National Society of Compliance Professionals Newsletter

Posted by Erin McClafferty on Dec 2, 2019 7:58:00 PM

NSCP Currents, the newsletter of the National Society of Compliance Professionals, recently included an article written by BBD partner Lori Ehleben that originally was published as a blog post of interest to private funds and investment advisors here in Investment Company Notebook.

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Alternative Investment Fund Tax Allocations: What You Need To Know About IRC Section 704

Posted by Matthew Romano on Nov 19, 2019 4:42:00 PM

In this post, we will discuss the rules and mechanics of alternative investment fund tax allocations.  Most alternative investment vehicles are structured as partnerships. Therefore, Subchapter K of the Internal Revenue Code (“IRC”), specifically IRC Section 704, provides the guidance and rules for tax allocations.

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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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Delays For Three Major FASB Standards A Win For Private Companies and Smaller SEC Filers

Posted by Cory Stewart on Nov 1, 2019 3:54:31 PM

On Wednesday, October 16, 2019, the Financial Accounting Standards Board (“FASB”) unanimously voted to delay effective dates on standards related to accounting for leases, credit losses and hedging.  These delays impact private companies and smaller SEC filers.  The effective dates remain unchanged for larger public entities.

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Securities Lending Fees – Income or Expense Offset?

Posted by James Kaiser on Oct 24, 2019 5:28:58 PM

April 2020 Update:

In my original post on answering the question if securities lending fees could be treated as expense offset, my answer to the question was “maybe." This was not a popular answer with my clients as they had competitors who were clearly treating the fees as expense offset.  One of our core values here at BBD is to be a collaborative partner to our clients, within the confines of our professional standards.  While we pride ourselves on being collaborative, this does not mean that we simply try to give our clients the answer that they want to hear.  A big part of being collaborative is providing accurate and correct information to our clients.  This also coincides with our second core value of being authentic. We mean what we say and we say what we mean. Our clients value hearing the truth.  In accordance with these values, I stand by the conclusion in my original post, but would like to further clarify my conclusion from “maybe” to “maybe but unlikely.”  I have yet to see a securities lending arrangement structured in a way that would support treating the fees as an expense offset.  While I believe it is conceptually possible, the most likely result will be that securities lending fees will be treated as an item of income.

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Partnership Taxation: What You Should Know About Section 754 Elections

Posted by Matthew Romano on Oct 15, 2019 4:11:44 PM

A Section 754 election can be a favorable tax efficiency tool that is unique to partnerships (as compared to corporations).  However, the complexity, administrative burden and changing economic environment should always be considered carefully.  Every general partner of a partnership should be aware of these rules and their implications.

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