Investment Company Notebook

Practical insight and analysis on the accounting, audit and tax issues impacting investment companies.

Pro Forma No "More-a"

Posted by Greg Kieselowsky Aug 16, 2020 1:07:00 PM

On May 1, 2019, the SEC proposed amendments intended to:

  • Improve the financial information reported to investors about acquired and disposed businesses
  • Facilitate more timely access to capital
  • Reduce the complexity and costs to prepare the disclosures
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An Overview of GIPS 2020

Posted by Jesse LaGrossa Jun 17, 2020 6:00:34 PM

The release of the GIPS 2020 Standards is the most significant overhaul of the GIPS Standards in almost a decade. Below are significant provisions of the 2020 standards that could impact how firms calculate and present performance to their current and prospective clients.

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

Posted by John Braun 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 CompanyTopRight Financial 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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In Challenging Times, An Option For Funds To Retain Cash

Posted by admin May 22, 2020 4:30:00 PM

Given the current COVID-19 crisis and its economic impact, it’s possible that some Regulated Investment Companies (“RICs”) could be exploring ways to retain their cash.  The shareholder distribution requirements of IRC Section 851, however, remain, and it is highly unlikely Treasury or the IRS would ever grant relief in this area.

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A New Spin On Spin-Offs

Posted by Lori Ehleben May 15, 2020 5:39:50 PM

Are registered funds recording taxable spin-off transactions correctly?

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Valuing Private Investments in Mutual Funds and Interval Funds

Posted by John Braun 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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COVID-19: Notable Investment Company Regulatory Changes

Posted by Rajesh Misra Apr 17, 2020 5:10:15 PM

In recognition of the operational challenges caused by COVID-19 for funds and their Trustees/Directors, the Securities and Exchange Commission (“SEC”) and the Internal Revenue Service (“IRS”) have both issued exemptions relating to filing due dates and other requirements.

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Structuring Your ETF to Support Your Intended Dividend Strategy

Posted by James Kaiser Apr 14, 2020 6:05:39 PM

One of the many appealing aspects of the ETF vehicle is that it is generally designed to be tax efficient. The primary mechanism for achieving tax efficiency is the ability to redeem appreciated securities in-kind.  Any gains realized on securities redeemed in-kind are not taxable and therefore do not need to be distributed to underlying shareholders. The ability to utilize custom baskets further enhances an ETF’s tax efficiency by redeeming a sampling of appreciated securities in redemption transactions, while selling depreciated securities to harvest losses.  A seasoned ETF is unlikely to ever have to pay a capital gain distribution.

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Interval Funds - Calibration in Valuation Models | BBD, LLP

Posted by James Kaiser 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? | BBD, LLP

Posted by John Braun 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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