The International Comparative Legal Guide to: Alternative Investment Funds 2019

7th Edition

A practical cross-border insight into Alternative Investment Funds work

Published by Global Legal Group, with contributions from:

Advokatfirmaet Schjødt AS Johnson Winter & Slattery Anderson Mori & Tomotsune LACOURTE RAQUIN TATAR Attorneys-at-Law Trust Lee & Ko Bär & Karrer Ltd. Legance – Avvocati Associati Bonn & Schmitt Magnusson Advokatbyrå Brodies LLP Maples Group Cadwalader, Wickersham & Taft LLP McCarthy Tétrault LLP Cases & Lacambra Mori Hamada & Matsumoto CNPLaw LLP PricewaterhouseCoopers Ltd Collas Crill LLP sammut.legal Davis Polk & Wardwell LLP Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates Dillon Eustace Travers Smith LLP Dubiński Jeleński Masiarz i Wspólnicy sp.k. VdA Finnius Vivien Teu & Co LLP Flick Gocke Schaumburg Walkers (Bermuda) Limited Hassans International Law Firm Webber Wentzel The International Comparative Legal Guide to: Alternative Investment Funds 2019

General Chapters: 1 Operating Private Funds in 2019: Transparency is Key – Greg Norman, Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates 1 2 The Global Subscription Credit Facility and Fund Finance Markets – Key Trends and Forecasts – Michael C. Mascia & Wesley A. Misson, Cadwalader, Wickersham & Taft LLP 3

Contributing Editor 3 Adviser Exams: Mitigating Enforcement Risks – Leor Landa & James H. R. Windels, Skadden, Arps, Slate, Davis Polk & Wardwell LLP 7 Meagher & Flom LLP and Affiliates 4 Bringing Foreign Investment Funds into Japan – Yasuzo Takeno & Fumiharu Hiromoto, Mori Hamada & Matsumoto 15 Publisher Rory Smith Sales Director Country Question and Answer Chapters: Florjan Osmani 5 Andorra Cases & Lacambra: Miguel Cases & Marc Ambrós 20 Account Director Oliver Smith 6 Angola VdA: Pedro Simões Coelho & Carlos Filipe Couto 27

Senior Editors 7 Australia Johnson Winter & Slattery: Austin Bell & Andy Milidoni 34 Caroline Collingwood 8 Bermuda Walkers (Bermuda) Limited: Sarah Demerling & Nathalie West 45 Rachel Williams 9 Canada McCarthy Tétrault LLP: Sean D. Sadler & Cristian O. Blidariu 55 Group Consulting Editor Alan Falach 10 Cayman Islands Maples Group: Grant Dixon & Andrew Keast 63 11 Cyprus PricewaterhouseCoopers Ltd: Andreas Yiasemides & Constantinos A. Constantinou 71 Published by 12 England & Wales Travers Smith LLP: Jeremy Elmore & Emily Clark 81 Global Legal Group Ltd. 59 Tanner Street 13 Finland Attorneys-at-Law Trust: Mika J. Lehtimäki 92 London SE1 3PL, UK 14 France LACOURTE RAQUIN TATAR: Damien Luqué & Martin Jarrige de la Sizeranne 99 Tel: +44 20 7367 0720 Fax: +44 20 7407 5255 15 Germany Flick Gocke Schaumburg: Christian Schatz 110 Email: [email protected] 16 Gibraltar Hassans International Law Firm: James Lasry & John Gordon 115 URL: www.glgroup.co.uk 17 Hong Kong Vivien Teu & Co LLP: Vivien Teu & Sarah He 121 GLG Cover Design F&F Studio Design 18 Ireland Dillon Eustace: Brian Kelliher & Sean Murray 132

GLG Cover Image Source 19 Italy Legance – Avvocati Associati: Barbara Sancisi & Marco Graziani 143 iStockphoto 20 Japan Anderson Mori & Tomotsune: Koichi Miyamoto & Takahiko Yamada 151 Printed by 21 Jersey Collas Crill LLP: Dilmun Leach & David Walters 159 Stephens & George Print Group 22 Korea Lee & Ko: Nelson K. AHN & Hyun KIM 165 August 2019 23 Luxembourg Bonn & Schmitt: Amélie Thévenart 172 Copyright © 2019 24 Malta sammut.legal: Karl Sammut & Bradley Gatt 180 Global Legal Group Ltd. All rights reserved 25 Mozambique VdA: Pedro Simões Coelho & Carlos Filipe Couto 188 No photocopying 26 Netherlands Finnius: Rosemarijn Labeur & Tim de Wit 195

ISBN 978-1-912509-91-1 27 Norway Advokatfirmaet Schjødt AS: Andreas Lowzow & Cecilie Amdahl 202 ISSN 2051-9613 28 Poland Dubiński Jeleński Masiarz i Wspólnicy sp.k.: Zuzanna Mariańska-Masiarz & Strategic Partners Michał Żwirski 207 29 Portugal VdA: Pedro Simões Coelho & Inês Moreira dos Santos 214 30 Scotland Brodies LLP: Andrew Akintewe 225 31 Singapore CNPLaw LLP: Amit R. Dhume & Abel Ho 234 32 South Africa Webber Wentzel: Nicole Paige & Gitte Truter 243 33 Spain Cases & Lacambra: Miguel Cases & Toni Barios 250

PEFC Certified 34 Sweden Magnusson Advokatbyrå: Robert Karlsson & Eric Cederström 259

This product is from sustainably managed forests and 35 Switzerland Bär & Karrer Ltd.: Rashid Bahar & Martin Peyer 266 controlled sources

PEFC/16-33-254 www.pefc.org 36 USA Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates: Heather Cruz & Anna Rips 275

Further copies of this book and others in the series can be ordered from the publisher. Please call +44 20 7367 0720

Disclaimer This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations.

WWW.ICLG.COM chapter 36 usa Heather cruz

skadden, arps, slate, meagher & flom llP and affiliates anna rips

1 Regulatory Framework Delaware also has sophisticated court systems that are experienced in matters involving alternative entities, and the governing statutes generally support the principles of freedom of contract among 1.1 What legislation governs the establishment and sponsors, managers and investors to order their affairs as they wish. operation of Alternative Investment Funds? All of these factors make Delaware the most common choice for U.S.-domiciled Alternative Investment Funds. In the United States, Alternative Investment Funds and their advisers are subject to the laws of the federal government and of the 1.2 Are managers or advisers to Alternative Investment individual state or jurisdiction in which the entities are incorporated, Funds required to be licensed, authorised or doing business and/or selling securities. regulated by a regulatory body? At the federal level, investment companies organised in and/or operating in the United States, including Alternative Investment Investment advisers to Alternative Investment Funds are subject to Funds, are generally subject to the jurisdiction of the Securities and regulation by the SEC under the Advisers Act and by the state Exchange Commission (“SEC”). The SEC’s jurisdiction comes by securities regulators in the states in which the adviser conducts way of the Investment Company Act of 1940, as amended business. (“Investment Company Act”), which governs the activities of In general, an adviser is required to register with the SEC if it has at investment companies, and the Investment Advisers Act of 1940, as least $110 million in assets under management (“AUM”), subject to amended (“Advisers Act”), which governs the operations and certain exemptions. Advisers with less than $110 million but more activities of investment advisers. In addition, the offering and sale than $100 million AUM may but are not required to register with the of interests in Alternative Investment Funds is regulated by the SEC SEC. Advisers with less than $100 million in AUM are generally under the Securities Act of 1933 (“Securities Act”) and the prohibited from registration with the SEC and instead must comply Securities Exchange Act of 1934 (“Exchange Act”), and are also with the registration requirements of the states in which the adviser regulated by the Financial Industry Regulatory Authority conducts business. The state-level registration requirements and (“FINRA”), a self-regulatory agency. exemptions vary on a state-by-state basis. In addition, depending on the activities of the Alternative Registering as an investment adviser with the SEC provides for pre- Investment Fund, other federal regulators may have jurisdiction emption from the various state registration requirements. However, over the Alternative Investment Fund or its adviser. Alternative investment advisers that are exempt from registration with the SEC Investment Funds that invest in futures, options on futures, or swaps or are ineligible to register with the SEC based on their AUM may be (other than certain security-based swaps) are subject to the required to comply with multiple states’ investment adviser regimes. jurisdiction of the Commodity Futures Trading Commission Generally, a non-U.S. adviser may register with the SEC regardless (“CFTC”). Further, Alternative Investment Funds sponsored by of its AUM. Further, under the SEC’s “territorial” approach to banks or bank holding companies may also be subject to certain Advisers Act jurisdiction, a non-U.S. adviser that is registered with requirements under the federal banking laws and may be subject to the SEC is generally subject to the substantive requirements of the the jurisdiction of the Board of Governors of the Federal Reserve Advisers Act only with respect to its U.S. clients. System (“Federal Reserve”). Alternative Investment Funds that In 2010, the Dodd-Frank Wall Street Reform and Consumer trade or invest in electricity are subject to regulation by the Federal Protection Act (“Dodd-Frank Act”) revised the exemptions Energy Regulatory Commission (“FERC”). applicable to investment advisers in the United States. Prior to the Most Alternative Investment Funds operating in the United States Dodd-Frank Act, many investment advisers were exempt from both are formed as limited partnerships or limited liability companies and SEC and state registration by virtue of the “private adviser are therefore subject to the laws of their state or jurisdiction of exemption”, which exempted any adviser that (i) had fewer than 15 incorporation. Alternative Investment Funds offered in the United clients during the course of the preceding 12 months, and (ii) neither States may be formed either under the laws of a U.S. state or in a held itself out generally to the public as an investment adviser nor non-U.S. jurisdiction. Alternative Investment Funds that are acted as an investment adviser to any registered investment domiciled in the United States are typically formed in the state of company or business development company. The Dodd-Frank Act Delaware, which offers well-established statutes governing the eliminated the private adviser exemption and in its place introduced formation and operation of alternative entities, including the limited certain narrower exemptions, which are summarised below. liability protections applicable to investors in such entities. iclg to: alternative investment funds 2019 www.iclg.com 275 © Published and reproduced with kind permission by Global Legal Group Ltd, London 276 usa dies r nt eitrd u ae ujc t SC eotn and these reporting SEC that recordkeeping requirements. to subject fact are but the registered reflecting not are SEC, advisers the by advisers” reporting the or Venture Exemption Capital Fund Adviser Adviser Exemption are referred to as “exempt Fund Private the on relying and Advisers reporting SEC certain Adviser to Fund recordkeeping requirementswithrespecttotheirprivatefunds. Fund subject Capital are Venture Private Exemption the the Adviser under under exempt advisers exempt Exemption, advisers the Like not electedtobetreatedasabusinessdevelopmentcompany. and (v) is not registered under the Investment Company Act and has investors; prospective and investors its to strategy capital venture a pursuing as itself represents (iv) circumstances; extraordinary in offer its investors redemption or other similar liquidity rights except not does (iii) non-qualifying guarantees); certain (excluding borrowing short-term in commitments limited than other leverage, incur otherwise or borrow not does (ii) capital fund’s investments as defined by the the SEC (other than short-term holdings); of cent per 20 than more no holds (i) that: fund private any encompassing from funds. The definition of “venture capital fund” is relatively narrow, exempts capital venture advise Exemption solely that advisers Adviser investment registration Fund Capital Venture The Venture CapitalFund Adviser Exemption 1.2.3 Fund Private Adviser Exemption. the of use make to advisers non-U.S. many allows business” unlimited an of manage “place amount of private fund assets from to outside the United States, which The adviser non-U.S. a funds. allows private requirement their to respect with requirements recordkeeping and reporting SEC certain are to exemption subject Adviser Fund Private the under exempt Advisers private fundassets,withatotalvalueoflessthan$150million. to attributable solely are U.S. the in business of place a at adviser © Published and reproduced with kind permission byGlobal Legal Group Ltd,London www.iclg.com the (x) if applies or more private funds, exemption the States, investment adviser has no client that is a U.S. person except for one United the outside For States. United the investment advisers with $150 their principal office in and place of business than management under less assets with in only million funds private to advisers investment for exemption an provides Exemption Adviser Fund Private The PrivateFund Adviser Exemption investment 1.2.2 non-U.S. many for desirable advisers. is Act Advisers the from provides this it exemption full While the scope, in narrow SEC. is exemption the by examination to subject not are and Act the under provisions recordkeeping or reporting to subject Advisers not are Private Exemption Foreign Adviser the on relying Advisers investment companyorbusinessdevelopmentcompany. an as States United investment adviser the nor act as in an investment adviser public to any registered the to generally out itself hold neither (iv) and adviser; investment the by advised funds private in States United the in investors and States United the in clients to attributable are that management under assets aggregate in $25 million than less have (iii) adviser; investment the by advised funds pooled private in or States United accounts the in investors managed and vehicles) (e.g., investment clients 15 than fewer total, must: (i) have no place of business in the United States; (ii) have, in To be eligible for the Foreign Private Adviser Exemption, an adviser Foreign Private Adviser Exemption 1.2.1 skadden, arps, slate, meagher & flom llP and affilia 1 and (y) all assets managed by the investment

iclg to: alternative investment funds 2019 Funds advisedbytheinvestmentadviser. any to relating records inspect may SEC the Investment Alternative investment examinations such registered at and advisers, reporting of exempt and advisers examinations periodic conducts SEC The SEC). the by confidential kept is which Alternative form reporting fund adviser’s the private (a PF Form and available) publicly is which form, reporting about information Investment Funds to the SEC on both Form ADV (the SEC’s annual certain report an adviser registers under the Advisers Act, the adviser is required to Alternative to advisers Investment Funds are regulated pursuant to the investment Advisers Act. When above, described as Further, the that limitinvestmentsinU.S.-registeredinvestmentcompanies. requirements under anti-pyramiding as requirements such certain Act, Company to Investment subject still are registration net their securities. Alternative Investment Funds that are exempt from certain offer publicly not meet do who and who tests sophistication worth/investor purchasers i.e., purchasers”; “qualified an exclusion for any fund whose securities are owned exclusively by which does not publicly offer its securities. Section 3(c)(7) provides whose fund any and persons 100 than more not by owned beneficially are securities for exclusion an provides 3(c)(1) exclusions Section the Act. for qualify to Alternative Company Investment the of 3(c)(7) or 3(c)(1) Sections by provided Most designed are requirements. Funds substantive Investment its of most from most However, therefore and Company Act Investment the under registration from Act. Company Investment Alternative Investment Funds qualify for an exemption or exclusion the to pursuant regulated are Funds Investment Alternative States, United the In ae h rsosblt t ngtae hi on ragmns with investment advisersbasedonthedisclosure theyreceive. arrangements own their negotiate to responsibility the have duty to act in the best interests of their clients. As a result, investors fiduciary broad a advisers on imposes and requirements disclosure for provides Act Advisers a the providing regime, than regulatory Rather comprehensive advisers. investment of personnel key requirements, and owners suitability for requirements qualification any or requirements, capital for provide not do federal laws U.S. countries, securities other many in laws securities the Unlike Form D in relation to such offering. See question updateannualthe tosubject is investors,itU.S. AlternativeInvestment ongoinganFundhasoffering exte the Additionally, to funds. the of strategies impactnotdistinctioncourse);however, doesthis funds (which generally do not allow redemption righ and redemption rights) generally allow (which funds differentseeksinforma PF Form reportingonregime and closed-ended Alternative Investment Funds. The In general, the U.S. regulations do not distinguish . Are Alternative InvestmentFundsthemselves 1.3 . Whatdoestheauthorisationprocessinvolveandhow 1.5 Doestheregulatoryregimedistinguishbetweenopen- 1.4 regulatory body? long doestheprocesstypicallytake? hedge)) and,ifso,how? required tobelicensed,authorisedorregulatedbya types offundsorstrategies(e.g.privateequityv Funds (orotherwisedifferentiatebetweendifferent ended andclosed-ended Alternative Investment e usa tes between open-ended 5.1, below. requirement of therequirement of t n open-ended an nt the operationsor the new private fund ts in the ordinary of securitiesof to rvt equity private tion for hedgefor tion © Published and reproduced with kind permission byGlobal Legal Group Ltd,London oto pros. mnmns r ohrie eurd t least at required otherwise annually within90daysoftheadviser’s fiscalyear-end. are Amendments and transactions persons). client control successions, about information as inaccurate materially (such become information of types identifying other certain as (such inaccurate or information), disciplinary and information custody information, become in information promptly of required types certain that are event the in Amendments instructions ADV Form with accordance registered. are they as long as includes amendments periodic filing by ADV current ADVForm their Form of keep must 2 Advisers clients. to Part provided be must that information adviser. new a of registration the approve to whether determining including purposes, regulatory Form of for ADV1 Part in provided information the uses SEC The It supplement”. “brochure the as known is part this 2B: Part 1.5.4 a requires It “brochure”. the as known is part this 2A: Part 1.5.3 about information additional requires part this 1B: Part 1.5.2 adviser’s the about information requires part this 1A: Part 1.5.1 Form ADV is publicly available and consists of the following parts: proceeding todetermineifregistrationshouldbedenied. administrative an institute or registration grant either must SEC the regulators by filing Form ADV. Within 45 days of filing Form ADV,securities state with and SEC the with register advisers Investment skadden, arps, slate, meagher & flom llP and affilia iclg to: alternative investment funds 2019 the example, For Advisers providers. service Act certain of use the required, than require indirectly will laws applicable the cases rather certain in although customary are engagements these of Most and offering formation ofthe Alternative InvestmentFund. the to respect with counsel legal engage typically or more prime brokers may be engaged as well, and the adviser will including accountants, auditors, providers administrators and custodians. One service engage typically Funds Investment Alternative Whatserviceprovidersarerequired? 1.7 an agentforserviceofprocess. of appointment the regarding requirements similar have may state Investment Alternative Fund or its an investment adviser is domiciled in a particular state, that if Additionally, States. United the in Secretary of State as the adviser’s agent to receive service of process must state a with consent to or appointing the Secretary of the SEC SEC and/or the applicable the with registering adviser non-U.S. a process, registration the of part as However, adviser. registered a for requirements residence local any impose not does SEC The Are therelocalresidenceorotherqualification 1.6 delivered torelevantclientsoftheadviser. be must but advisers federally-registered for SEC the with filed be to have not does supplement brochure The client. particular the to services advisory provide who adviser the of personnel certain about information résumé-like requires and It is filed electronically with fees the SEC and delivered to clients. business, the of compensation, disciplinary information, and key risk factors. description a specific of including number items, a to response English plain narrative, filed is and states by more completed electronically withthestates. or only one is with It registered advisers events. disciplinary to respect certain Part 1A responses, as well as narrative disclosure with is It filed electronicallywiththeSEC. events. disciplinary disclosure including matters, narrative various certain about brief, require although schedules and format, sections “fill-in-the-blank” or “check- the-box” a in employees and ownership practices, business requirements? controlled by b the non-U.S. manager or adviser would to su generally fund a by owned company portfolio for a by business U.S. a of control in result might transact those review could (“CFIUS”) States United In Foreignsecurity, nationalonCommittee U.S. the U.S. that is investing in certain industries or ass the non-U.S. manager or adviser is operating a fund adviser’ssuchreceivingas forserviagent SEC the registering with no the SEC must consent a to appointing above, 1.6 question to answer the in stated as Unitedthe domiciledinotherwisefunds operate or foreignanyapplytomanager adviser or wishing to question to answer the in discussedregulations The offers equivalent advantages, but it remains a less a remains it butadvantages, equivalentoffers share)accounting.general,DelawareIn a limited capit efficienciesoperationalof the andpurposes, and federal U.S. for receives it treatmentthrough partnership limited limited liability status it affords The investors as li prevalence among Alternative partnerships. Investment Funds is at Delaware use Delawarewithpartnership contributelawgenthe to practitioners in major legal centres in the U.S. ar together certainty ex legal resulting the and and courts, partnerships governing law of body developed and the investors, as limited partners. Delaware h sponsor,as the relationship between thegoverning flexibili great allows partnership limited Delaware partnershiporganisedin limited a of form the take AlternativeInvestment Fundsorganised U.S.thein Investment Funds. Alternative to advisers investment including advisers, investment assistance among regulators party to each such MOU reciprocal with respect to of visits, types other of on-site provision and permit information, of may sharing and country, by country vary MOUs such underlying agreements The AIFMD. the of implementation and governments numerous regulators, including almost all EU countries in a connection with the with into understanding entered of have memoranda authorities government States United The . Whatrulesapplytoforeignmanagers oradvisers 1.8 . Whataretheprincipallegalstructuresusedfor 2.1 Whatco-operationorinformationsharingagreements 1.9 independent an by examination public accountant. annual an undergo to is required affiliate or adviser the cases such in although thereof; affiliate an or adviser the be may custodian qualified The own). their from U.S. financial institutions that customarily hold such assets separate non- certain and broker-dealers, banks, includes (which custodian” include maintaining the client funds and securities with a “qualified steps These assets. those safeguard to steps certain take securities or funds client of custody with adviser registered any that requires FundStructures 2 funds domiciledinyourjurisdiction? Alternative InvestmentFunds? regulators? wishing tomanage,advise,orotherwiseoperate have beenenteredintowithothergovernmentsor e usa tes www.iclg.com mited partners, the flow- ets that may implicate e likely to be familiar as a relatively well- ih h fc that fact the with al (as opposed to opposed (as al liabilitycompany commonly used commonly ce of process. If process. of ce domiciled in the state income tax income state Delaware. The Delaware. ch fund. the Secretary of mostcommonly manage,advise, eral tendencyeralto eign person. A person. eign States. Further, States. y n h terms the in ty general partner,general tributable to the vestment in the in vestment 1.1 above will above 1.1 -.. adviser n-U.S. os f they if ions deemed e perienced form’s 277 usa 278 usa © Published and reproduced with kind permission byGlobal Legal Group Ltd,London www.iclg.com l not are partnerships limited t Delaware provides of partners statute partnership limited Delaware The Pleasedescribethelimitedliabilityofinvestors. 2.2 certain pen in private concentrated vehicles, such as those established for be U.S. tax-ex U.S. to because tend helpful will investment is This directly. pensi thes which in vehicle fund feeder each to test this private U.S. to reference investors’ indirect interest by in the master fund as performed be can pr additionalcertain with that, possibility the up “master-feeder”thefund,master investedthrough a assuring By equity). of class any of more or cent pension funds is not “significant” (generally assum equity their of portion the that assuring by ERISA Many AlternativeInvestment Funds seekavoidto the pension private U.S.protecting regime federal U.S. relates“master-feeder” structure the of advantage structuretotax.needreducefor thetendstoheld the andstructures, multiplethroughinvestments of strategies tend to make it impractical to hold one price to pay given that the volume and velocity of paralle among investorsflesubscribeoflossredeem, the holdingsand and rebalance to need the avoids “master-feed the fund, master a through investments tax-neutraljurisdictioa organised inandpurposes corpora a as classifiedvehicle“blocker” a through inve tax-exempt U.S. and foreign and investors feeder onshore taxable U.S. Typically, investments. all “feederfunds” thatturnin all invest onein“mast structure,investorssubscthis In structure. hub” “master-feeda offavourflexibility thisforegoin ha other the on funds, Hedge basis.case-by-case a enoughandfor long enough towarrant structuring t closed-endedotherholdingi andbe likelyfundsto The parallel fund structure is often used by privat to “block”forotherinvestments. to directly income tax or reporting them requirements in the U.S. while choosing not subject otherwise might that income “block” to trusts investment estate (“REITs”) certain or other vehicles that are non-transparent for tax in order real hold corporations, may through invest investments investors foreign or investors exempt parallel fund. For example, a parallel fund through which U.S. tax- of categories or that in investors the for investments optimal is manner whatever in investments portfolio particular of holding its structure to fund parallel each permits also It Islands. Cayman the within an entity located offshore in a tax-neutral jurisdiction such as investors non-US house to being variation common most the type, the jurisdiction of the organisation to be varied according to investor funds that invest in a side-by-side manner. This allows the form and policies). A common approach is to establish “parallel” or “mirror” internal investors’ and requirements regulatory occasionally (and investors of types different of preferences tax the accommodate to order in vehicle one than rather vehicles investment pooled several of complex a as structured often are Funds Investment Alternative also are not commonly used for Alternative Investme limit a of those to similaradvantagesoffer trusts jurisdictionsforeignfor treatyandtaxpurposes. the United States and are not treated as transparen companiesattractmayfranchisecertain jutaxesin addition In partnerships. limited the with familiarity to due Funds Investment Alternative for vehicle skadden, arps, slate, meagher & flom llP and affilia opposed to applying investment or group t in certain non-U.S. Delaware statutory ribe for interestsin for ribe e equity, real estate Anotherpotential ecautions, this test this ecautions, er” or “spoke-and-or er” er”fundthat holds hedge fund trading empt investors. ed partnershipbut ed n. 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Pursuant to such authority, the SEC adopted Rule deceptive device or contrivance” in connection with the purchase or or “manipulative any prohibit that rules adopt to SEC the permits Exchange the of Act, provision antifraud general the 10(b), Section insurance in investments companies orutilityaresubjecttocertainrestrictions). example, (for investments its be may making fund a which in industries of number a over jurisdiction with functions Investment regulatory state and federal the of range a exists or below, there 4.2 question Act to answer the Advisers in discussed the as Act, Company under funds its manage to ability manager’s a on limitations further no are there Though o sue opine ih h rgltr rqieet noted requirements regulatory the directly below. with compliance assure to sponsor without parties unaffiliated consent on to a case-by-case basis due, among other things, to the transfers need permit not do usually funds investment equity-style private and hedge-style Both . 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What legislationgovernstheproductionandoffering 3.1 Arethereanyotherlimitationsonamanager’s ability 2.6 Marketing 3 investors’ interestsin Alternative InvestmentFunds? of marketingmaterials? asset strippingrules)? to manageitsfunds(e.g.diversificationrequirements, e usa tes www.iclg.com s in the U.S. avoid a requirement und’sofferingfrom transfers in order to income taxation if Act (the limit was ethat transfers do in reliance on the on reliance in s whose investors he JumpstartOur he and investing on ited States could States ited e employees” of employees” e d partnership”, ed iial, f the if Similarly, sing interests in interestssing hooses to avoid to hooses ,0 o more or 2,000 l onn $5 owning als ol ne to need would c)(1) exclusion le requirementle diin the addition, s at f a of part as h precise the channels), n ca owners icial udr the under y exemption et and ments transfers , 279 usa 280 usa © Published and reproduced with kind permission byGlobal Legal Group Ltd,London www.iclg.com the addition, in Court Supreme In manipulative. or deceptive fraudulent, is which prohibit business of which course or practice, antifraud Act, act, any Advisers in general engaging from the advisers the of 206 to Section subject are of are they provisions SEC, not the or whether with advisers, registered all of communications The Whatarethekeycontentrequirementsformarketing 3.3 No, theconceptof“pre-marketing”isnotrecognisedinUSA. Istheconceptof“pre-marketing”(orequivalent) 3.2 to subject remain they laws, securities common-law andstatesecuritieslawprohibitionsagainstfraud. federal the of outside To the extent that an adviser’s communications with an investor are not limited to situations involving the purchase or sale of a security. Fund example, in contrast to Rule 10b-5, the Advisers Act regulations are For Investment provisions. antifraud Act Exchange the with Alternative regulations Act of Advisers the conflating avoid to aspects taken be should Care marketing. all across extends a that requirements form detailed of framework non-intuitive and complex collectively SEC the the by articulated and guidelines regulations additional Act Advisers The advisers. against actions through various means, including no-action letters and enforcement guidelines marketing Act Advisers additional of layers generated thereunder.promulgated has rules SEC the The and 206 Section in the by forth set provisions antifraud general the regulated Advisers specifically Act, Funds. also is Investment marketing Fund Alternative Investment of Alternative which marketing applicability, of the scope broad encompasses a have rules antifraud Act Exchange other the and 10b-5 Rule fact. material a of omission or artifice to defraud”, and which creates liability for any misstatement 10b-5, which generally prohibits the use of any “device, scheme, or skadden, arps, slate, meagher & flom llP and affilia would be deemed to constitute fraud within the mean thewithinconstitute fraud to deemed be would substantive provisions of Rule 206(4)-8 that occurs unintentional an Even fraud. for specifically case brin to order in adviser an of part t the on havescienter not does SEC The vehicle. investment pooled (c or misleading,engage in any other fraud not on investors or prospecti statement a make to necessary stat to omit (b) fact, material of statement untrue 20 Section of registered meaning or unregistered adviser to the a pooled vehi within business of course it to constitute a fraudulent, deceptive or manipul conduct not commonly considered fraudulent. Rule 2 206(4)-8theof Advisers whichAct,definesfraudt s also are Funds Investment Alternativeto Advisers was conduct unintentional. prohibited the where cases have in to 206 found Section be violated may adviser An a interest. involve of that conflict potential situations including independence, adviser’s the affectmay that facts any regarding clients to disclosure appropriate may conflict with those of its clients. interests An adviser adviser’s is required to an make when important especially is disclosure fair reasonable care to avoid misleading’... clients”. The duty of full and obligation’affirmativeemploy ‘an ‘to as well as facts’, material all affirmative duty of ‘utmost good faith, and full and fair disclosure of fiduciary,“an a has adviser,as an that stated (1963)) 186 180, U.S. customary practice? materials, whetherduetolegalrequirementsor been defined(bylawand/orpractice)? recognised inyourjurisdiction?Ifso,howhasit SEC v. Capital Gains Research Bureau, Inc. Bureau,Research Gains v.Capital SEC ative act, practice or cle to (a) make any ve investors in the due to negligence g an enforcement an g a aeil fact material a e o includecertaino violation of the of violation 06(4)(8) deems ubject to Rule to ubject ing of Sectionof ing otherwise ) establish o fr any for 6 (75 iclg to: alternative investment funds 2019 prospective client. the of content the of sophistication the (iii) and the context; total its in advertisement as the from well drawn inferences or as implications the form (ii) advertisement; the (i) or including: false use, is its advertisement particular any misleading also depends on the facts and circumstances involved in whether that generally letters advise no-action SEC that mindful be should advisers addition, In requirements. SEC’s the of aspects all with familiar any adviser that is subject to the U.S. advertising rules must become article, this of scope the beyond is guidelines 206(4)-1 Rule the of summary a 206(4)-1. Although Rule of requirements other the and provision “catch-all” the interpret to SEC the by created guidelines The standards set forth in Clover are just one part of a broader set of relate only partially, to the services currently of securities or strategies reflected in a model portf disc to failing (ii) and results, model in modeinherent of presentation discl the to failing practices (i) things,other amongincluding, to several respect that with stated misleading also SEC the Clover, performanctheobtaininvestment strategiesto used loss; and (d) failing to disclose any material cond about the potential for profit without also disclos or suggesting advi (c) paid; actually or paid have would investment of deduction brokerage the or other commissions, and any other expen reflect to failing materialmarket or economic conditions on the resul discl to failing (a) things: other among including, past of presentation the to respect with t misleading practices specific of range wide a identified SEC of the most important no-action letters regarding a CapitalCloverManagement,(availableInc. October For results. performance standa model of the construction the with connection in methodology for calculating and particularlypresenting past per SEC, the letterno-actionvariousgenerated prohibitionhas or which is otherwise false or misleading. The for or distributing any advertisement that contains any publis206(4)-1adviserprohibitsfromRulealsoan and withoutanydirectorindirectconditionobligation. free entirely are services or materials such unless charge, without or the free furnished be will service and other or analysis report, any that thereof limitations the effect the to statement any (d) or use; its to respect with difficulties disclosing prominently case each in without determinations, such making in person any assist will (ii) or securities, sell or buy to when or sell or buy to securities which determine itself of and in can (i) offered, being device other or formula chart, graph, any that any representation indirect (c) or disclaimers; direct certain includes and year, one than less not all of list detailed a the furnish recommendations made within the immediately preceding period of unless to offers person, or any out to sets profitable advertisement been indirect have would or that or adviser direct were the (b) by recommendations rendered; specific past has to it references service other or analysis, advice, report any concerning or the adviser the of concerning kind any any of testimonial advertisement a to references indirect an or direct (a) following: in including prohibits 206(4)-1 the SEC considers to be misleading or likely to be misleading. Rule or required to be registered with the SEC from certain practices that registered is that adviser an prohibits specifically Act Advisers the of 206(4)-1 Rule provisions, antifraud foregoing the to addition In case for fraud against the adviser under Rule 206(4 e an bring could SEC themisleading, notmemorandum m to necessary fact material a include to neglected and inadvertently adviser an if example, For 206. e usa tes fered by the adviser. ing the possibility of olio do not relate, or itions, objectives, or ose the limitationsthe ose egoing “catch-all” dvertisements, the lose if any of the of any if lose untrue statement, interpretationsby )-8. formance and for ose the effect of effect the ose hing, circulatinghing, e advertised. In advertised. e tsportrayed; (b) making claims making ake its offering its ake ses that a client 28, 1986), one1986), 28, performance, a wud be would hat n od faith good in xml, in example, nforcement oy fees, sory ol be would results, l d and rds © Published and reproduced with kind permission byGlobal Legal Group Ltd,London re t egg i sc atvte, n sur s eurd o take to required is issuer an activities, such in engage to in order However, requirements. registration Act Securities to subject becoming without securities their offer to advertising general and Alternative solicitations general employ Act, to ability the gained Funds Investment JOBS the of components certain implementing With the 2013 adoption of amendments to Rule 506 of Regulation D in greater detailinquestion3.6below. discussed is investors” “accredited of definition The U.S. the co- or interviews television, no (e) and operation with the U.S. press or with press likely to be directed into U.S.; through the in made solicitation solicitations all general no of records of maintenance (d) like; the and internet the newspapers, (c) accredited; are investors its that belief” “reasonable a defined (b) D; Regulation under as investors” “accredited to only sales (a) requirements: fall within either exemption an adviser must private adhere to the following to Generally, the D. Regulation in contained under thereunder harbour safe either sold are placement exemption under Section 4(2) of the Securities Act or the interests Fund Investment and to substantive disclosure and reporting obligations. Alternative Act Company Investment the under regulation to Fund Investment are such requirements because registration would subject an Alternative Funds from exemption an to Investment pursuant States United Alternative the in sold in typically Interests Act. in Securities interests the under requirements registration (including the SEC from exemption the an absent States with registered be United must Funds) the Investment Alternative in sold Securities attention oftheSEC. in filings such as its Form ADV and Form PF are likely to attract the made statements its and materials advertising adviser’s an between claims made in the advertisements. In addition, any inconsistencies registered distributed by the adviser, along materials with documentation supporting the advertising a view to of request often examination will SEC SEC the adviser, any during However, rules. advertising the with compliance in are they whether determining Fund. Nor does the SEC generally provide assistance to advisers in or registering for Investment requirements an Alternative of documents marketing the any of approval impose not does SEC The any that requirements underRule206(4)-1. determination advertising the to subject not is and advertisement of definition a the making of outside falls clients prospective or existing with before communication caution exercise “advertisement”. an considered Because of the broad definition of “advertisement”, advisers should be of typically will purpose services buy to the those clients potential for soliciting or services clients existing advisory maintaining promotes that material Any securities”. to regard with service advisory investment other any (3) or sell; or buy to security security,which any or sell or buy to when to as determination any making in used be to device other or formula, chart, graph, any (2) or sell; or buy to security which security,any sell or buy to orwhen to as determination any making in used be to is that or any securities, concerning publication or report, in analysis, announcement any (1) offers: other that television, or or radio by or notice publication any or person, one than more to addressed communication written other or letter circular, notice, “any including as “advertisement” defines 206(4)-1(b) Rule skadden, arps, slate, meagher & flom llP and affilia iclg to: alternative investment funds 2019 Whatrestrictionsarethereonmarketing Alternative 3.5 Dothemarketingorlegaldocumentsneedtobe 3.4 Investment Funds? registered withorapprovedbythelocalregulator? eiiin f aceie ivsos i dsusd n usin 3.6 question in below. discussed is investors” “accredited of definition eea avriig ut ae raoal” tp t vrf that verify to steps “reasonable” take use must and advertising solicitations general general make to 506 Rule amended under opportunity the of themselves avail to wishing issuers previously, noted As investors. accredited are owners entities’beneficial such other all which in entity any or or million; $5 of excess in assets with entity tax-exempt a institution; financial other or bank a year; and a reasonable expectation of the same income level in the current $300,000 of spouse) (with income annual combined a or $200,000 ot (ae tgte wt te e wrh f n sos) f $1 of spouse) any An of worth million, net the with investors. together (taken non-accredited worth net for a has either who individual exception an includes: investor” “accredited investor 35 a Funds Investment to Securities subject the Act, under to register to required being avoid order Alternative in investors” “accredited section, to only sold prior be must generally the in noted As investors. non-accredited for exception 35-investor a to to Securities subject the Act, under register to required being avoid to only order in D sold Regulation under be defined as investors” must “accredited generally Funds Investment Alternative efrac, ih h avsr oetal baig h economic the risks involved. bearing potentially adviser the with of performance, regardless time, any at exercisable are rights rescission These state and federal law for each investor at the original purchase price. Act’s registration requirements will generate rescission rights under fails to comply with all that aspects of the exemption from the Fund Securities Investment Alternative an by offering unregistered An the under Securities Act. S Regulation to pursuant offering offshore a concurrent conducting from issuer an prevent not will advertising or general solicitation general involving 506 Rule amended United under the States in offering an that confirmed also has SEC The Act. Company Investment the under exclusions fund private the without losing advertisements general and solicitations general employ its now may the Funds of of Investment Alternative 506, adoption Rule to the offering amendments with an that public view if the takes a SEC upon the makes securities, relied Fund be Investment cannot Alternative exclusions Investment the these under are Act While that Company below. Act 3.6 Company question in Investment discussed the by provided company investment an of definition the from exclusions the of one on rely typically Funds Investment Alternative Act, Company Investment general prohibiting In order to avoid registration as an “investment company” under the requirements pre-existing solicitation. the by abide to continue Most advertising. general use and solicitations general make to opportunity the of themselves availed not Funds generally have Investment Alternative date, To investors. accredited are the processes and procedures used to verify that all of its purchasers issuer document that An records retain and should solicitation purchaser. general a facts each making and particular offering the each of on circumstances based determined are issuer is the by “reasonable” taken steps the are Whether securities investors. its accredited of purchasers that verify to steps “reasonable” . Whatqualificationrequirementsmustbecarriedout 3.7 Can Alternative InvestmentFundsbemarketedto 3.6 in relationtoprospectiveinvestors? retail investors? 3 or in the last two years has had either an annual income of income annual an either had has years two last the in or e usa tes www.iclg.com 2 The 281 usa 282 usa © Published and reproduced with kind permission byGlobal Legal Group Ltd,London www.iclg.com registration. E from exemptions certain within remain to order in staybelow1,999 U.S. investors (withunlimited non 3(c)(7) offshore and investors total 499 below stay Company Act. In practice, however, onshore 3(c)(7) an have may numberofinvestors without having toregister unde fund 3(c)(7) A the investment. the for making formed not were investors the that provided through “look not does 3(c)(7) Section purchasers. issue securities all of owners beneficial all which ( and purchaser; qualified a from separation) legal de as (such event involuntary an to due or bequest, fun 3(c)(7) a of securities received who person any and (b (a), trust underpurchaser qualified a contributorsis the to respect the with both discretion which investment to as and securities fund’s 3(c)(7) purposespecificthe for formed not trust other any “i in million $25 than less not basis discretionary an owns aggregate the in that purchasers, qualified a the or account own its for acting person, any (c) fortheir benefit that owns not less than $5millio re persons, their closelyestates or foundations, charities, more o or two m by entirely $5 owned indirectly than less not owns “investments” that(as defined theSEC);by (b) anycomp person natural any (a) purchas qualified Act, Company Investment the Under knowledgequalifiedpurchaserora be investor must For an Alternative Investment Fund to qualify as a being accreditedinvestors. to addition in clients qualified are investors their that ensure must fees performance charge that funds 3(c)(1) Accordingly, accredited investor. an be to required thresholds the than are higher generally that thresholds dollar certain meet or management worth under net assets that requires status client Qualified arrangements. clients” capable of “qualified bearing the risks be associated Alternative with to performance fee deemed an are investors with its unless connection Fund Investment in and realised losses) both and of gains amount unrealised the on based fees measured performance (typically charge not may adviser investment registered a the Advisers Act under that noted be any also should It fund. 3(c)(1) through” “look must fund the in investing of purpose the for formed 3(c)(1) was of that entity investing a number addition, its In calculating of owners. purposes the for underlying holders investor’s such security to through” “look must fund 3(c)(1) registered the then law, a U.S. under organised it (ii) were register to have would and fund, 3(c)(1) investment such company, a 3(c)(1) fund, a 3(c)(7) fund, or an owner that of securities fund voting 3(c)(1) a the of of owner greater or case cent per 10 a the (i) both is itself In that investor 3(c)(1). Section of purposes for owners “look-through” beneficial of number A the determining in applies provision 3(c)(1). an Section of under definition company the from investment exempted are persons whose 100 than Funds more Investment Alternative securities (other than short-term paper) are beneficially owned by no respectively). “3(c)(7) and funds”, funds” “3(c)(1) as herein to referred are exclusions Investment the such under operating of Funds Investment (Alternative Company Act 3(c)(7) or 3(c)(1) Section either in contained company” “investment an of definition the from exclusion the of In addition, Alternative Investment Funds typically avail themselves accredited investors. only need to have a “reasonable belief” that all of their investors are do not make general solicitations and do not use general advertising who Issuers investors. accredited are securities their of purchasers skadden, arps, slate, meagher & flom llP and affilia r trusts formed by or n inn“investments”; ) or (c) above; (e) above; (c) or ) 3(c)(7) fund, each nvestments”; (d) nvestments”; of acquiring theacquiring of ccounts of other of ccounts r ther Investment funds typically funds ) n ett in entity any f) -U.S.investors) funds typically ae qualified are d able employee. able ath, divorce or divorce ath, ” its investors, its ” ivss n a on invests d anydirectly or a a it or gift a as d ah f the of each ae natural lated xchange Act xchange ups of purpose esn with person ers include: ers unlimited lin in illion iclg to: alternative investment funds 2019 make or solicit political contributions in that jurisdiction. that in contributions political solicit or make directors, covered children) or spouses as (such members family their and employees, certain cases many in and affiliates, its PAC, its corporation, the if entities which governmental certain with contracts laws “pay-to-play” or arrangements business into so-called entering from corporation a prohibit have jurisdictions Some nlec a ofca; n () ny etit it wih a be may which gifts restrict only problematic under abriberystandard. to (4) tend and reasonably official; may an that influence gifts prohibit (3) period; time per are some and occasion per are some – gifts on limits dollar impose (2) value; of regardless gifts ban absolutely (1) which: jurisdictions categories: four into fall to tend and jurisdiction, the vary on depending laws These local certain laws. gift that separate own note their have Also jurisdictions officials. public local its and/or to state given lodging, or transportation, items, gift entertainment, meals, e.g., gifts, regulating laws gift own its has also state Each of itsagencies. any or branch lobbying, executive the of action official non-ministerial other procurement for registration including marketing to public bodies or attempting to influence any require also numerous and localities states of majority requiring the lobbying regulations, to as and legislation such addition activity In lobbying “traditional” for registration actions. or decisions governmental who persons on requirements contact certain public officials for the purpose of influencing certain reporting and registration impose lobby that laws lobby have also localities many and state Each to relating records and books maintain to advisers requiring ■ political only allowing employees of the adviser and certain regulated of coordination ■ or solicitation prohibiting ■ in forcompensated being fromadvisers prohibiting ■ of awarding “pay-to-play” practices). This isaccomplishedby: the over (i.e., business influence advisory investment pension public and have government may who officials local to is 206(4)-5 and state Rule to contributions political of between connection the remove intent The agents. placement of use the and entities, government with business do who advisers investment by activity pay-to-play political restricting a specifically case such this in of restriction, example one provide 204-2 Rule in rules Rule 206(4)-5 under the Advisers Act and the related recordkeeping can haveimplicationsunderapplicablelabourlaws. broadly too contributions on ban a policy. Applying such apply to broadly how is question The contributions. employee and director a laws, prohibiting these or pre-clearing policy address a institute to to have will company Thus, company. the for liability legal trigger automatically laws these of many under can contributions donors. covered its political soliciting by or making individually employees and Directors made contributions report to contractor such requires rather but contracts government on ban a trigger not cases. In some jurisdictions, a contribution by a covered donor does some in years five to up last could contracting government on bans Arethereadditionalrestrictions onmarketingto 3.8 contributions to certain officials of that governme fortwoyearscoveredif employees thefirmofmake advisory services provided to a state or local gove public bodiessuchasgovernmentpensionfunds? tt ad oa gvrmn ett cins political clients, information entity and agents, relating tocoveredemployees. government placement of use local contributions, and state from business advisory investment solicit government entities;and to entities committees; party local or state certain or officials such to contributions e usa tes rnment entity nt entity; vestment political 4 These © Published and reproduced with kind permission byGlobal Legal Group Ltd,London h rqieet i a areet y h slctr o rvd the provide to solicitor the by agreement an is requirements the Among met. are conditions additional certain unless arrangements indirectly paying a cash fee to a solicitor with respect to solicitation or directly from Act Advisers the under registered be to required is that adviser an prohibits Act Advisers the under 206(4)-3 Rule actually or registered exempt fromregistration. properly are agents sales paid that ensure the who meet to to precautions take person as must advisers “finder”. such, a As of definition way a a such in find activities his to of scope unusual the confines is it Consequently, materials). Investment Fund’san Investment of offeringAlternative delivery the Alternative and Fund an regarding discussions (e.g., activities the because selling of range rare normal the include not extremely does “finder” a of are concept “finder” a considered be could broker.a as register person a However,which in circumstances the to required not is who “finder” a merely is therefore and others of in the business of effecting transactions in securities for the accounts who person a introduces a potential buyer of securities to an issuer is not engaged that claim the encounter sometimes Practitioners Alternative an in investment their Investment Fund regardless of the current valuation of that holding. of price original the of recoup granting the may investors relevant include the that such could investors, to rights sanctions rescission Such adviser. its and in result can substantial Fund sanctions for the broker, Investment the Alternative Alternative Investment Fund an of interests sell to registered, not, is but significant be, should who broker a of especially use the that given is 3a4-1 Rule by offered harbour safe The Alternative InvestmentFund. correlated with, such associated person’s sales of the interests of the being of appearance the have even may or with, correlated be may bonus that whether a consider must contemplating person associated an is for bonus that adviser an Alternative interests, the Fund’s of Investment sales with connection in compensated be not persons associated that requirement exemption’s the with comply to order in example, For interests. Fund’s Investment Alternative the of sale a the surrounding circumstances with precise the to attention associated been) recently requires and broker.narrow registered relatively is not exemption This has employees, certain to respect with (and, currently (c) or Fund, Investment Alternative an in interests of sales with connection in compensated indirectly or directly (b) disqualifications, statutory certain to subject (a) not is interests selling person each that others, among including, met, are requirements certain that provided Fund Investment Alternative associated permits an of interests the of exemption sale the in participate to adviser an officers, of This persons brokers. be directors, to not issuer partners, an certain of persons”) (collectively,“associated agents other and employees, deems safe a which provides Act harbour, Exchange the under 3a4-1 Rule However, therefore beregisteredassuch. should and “broker” a as acting is Fund Investment Alternative an the sold, are Fund question should be Investment asked whether the person selling Alternative such interests in an in interests Accordingly,when securities. in transactions effecting are they which In may have to register with SEC. the securities commissions of the states in the brokers circumstances, with fact-based various such on depending as addition, registered be brokers that requires Exchange further The Act others”. of accounts the for securities in transactions effecting of business the in engaged person “any mean to “broker” term the defines Act Exchange the of 3(a)(4) Section Arethereanyrestrictionsontheuseofintermediaries 3.9 skadden, arps, slate, meagher & flom llP and affilia iclg to: alternative investment funds 2019 to assistinthefundraisingprocess? i h bnig niy ut rvd provide must entity banking the (i) following the satisfy must entity conditions: the banking a is exemption, entities funds banking to permitted the for qualify to order In available exemption”. funds “permitted exemption primary The exemptions. certain to subject funds, covered in invest and sponsor to continue however,funds, such in the Volcker to entities banking allows Rule in, investing or hedge funds offering,or private equity funds. Despite the and such ban on investments organising of from subsidiaries entities) manager banking asset (including entities prohibits banking Act, Dodd-Frank the of provision a Rule, Volcker The disclose, conspicuously and clearly must entity banking the (viii) an take may entity banking the of employee or director no (vii) other or promotional marketing, corporate, for fund, the (vi) indirectly,guarantee, or directly not, may entity banking the (v) a into entering from prohibited is entity banking the (iv) to fund the of ownership its (a) limit must entity banking the (iii) and a separate written solicitor disclosure. 2A Part ADVForm adviser’s investment the of copy a with client .0Arethereanyrestrictionsontheparticipationin 3.10 fee arrangements. that an adviser disclose that it pays solicitation fees and describe the (ii) the fund must be organised and offered only in connection in only offered and organised be must fund the (ii) sponsors orinvestors)? oey y netr i te oee fn ad o b the by not and fund covered banking entity. the agencies in investors appropriate by the solely of rules designed to ensure that losses in such covered fund are borne additional any comply and with the disclosures in enumerated investor certain actual fund and covered prospective any to writing, in advisory orotherservicestothecoveredfund;and or employee who is directly engaged in providing investment ownership interest in the covered fund except for any director or affiliate an name; (or its in “bank” entity word the use not banking may and thereof) subsidiary the with name same the of variation a or name same the share not may purposes, such which in fund covered any covered fundinvests; of or fund covered the is assume, or otherwise insure the obligations or performance of thus and exemptions) certain frequently referredtoas“Super23A”; to (subject certain absolute and is limits prohibition VolckerRule the to exemptions, and conditions subject are transactions” “covered which to pursuant Act, Reserve Federal the of 23A Section transaction” under Federal Reserve Act Section 23A. Unlike “covered a be would that fund covered any with relationship cent ofthebankingentity’s Tier 1capital; its aggregate ownership in all covered funds to less than 3 per fund’sthe of cent per 3 than less (b) and interests, ownership entity; banking the of services such of customers are that persons advisory, or commodity trading advisory services and only to investors, suchasfinancialinstitutions(whether Alternative InvestmentFundsbyparticulartypesof with the provision of provision the with investment advisory or commodity trading advisory services; e usa tes bona fide bona trust, fiduciary, investment fiduciary, trust, oa fide bona 5 Form ADV also requires www.iclg.com rs, fiduciary, trust, 283 usa 284 usa © Published and reproduced with kind permission byGlobal Legal Group Ltd,London www.iclg.com restrictions place laws applicable include: where issuers of types the of along Some principals. its of accounts and accounts discretion proprietary any with investment exercises it which over accounts all of holdings the aggregate to required be may adviser investment an be control, or can ownership determining of securities purposes for and, the purchased, before regulator a of consent prior require may laws These company. an a in acquiring position controlling from or group influential or person single a prevent to are designed laws The industries. regulated highly in companies to apply securities of certain companies. Most of these federal and state laws the of ownership on limits place laws state and federal Aof variety Investments inRegulatedIndustries discussed as apply, below. portfolio Fund’s Investment Alternative an as certain addition, objective, other In restrictions on the types of investments that can be included in investment materials. offering fund’s fund’s such such in disclosed with consistent are that are investments of types the Funds in invest to funds such cause to Investment obligated Alternative advising advisers Generally, Arethereanylimitationsonthetypesofinvestments 4.2 been has information the that so disseminated widely. passed has time after and sufficient circulation, general news of a publication agency, or government service other reporting some or SEC the with filing public a through public general the to available become has it after public is information example, For marketplace. the in investors to broadly disseminated been has it when “public” is Information be to reports published inthefinancialpressalsomaybematerial. regarding information Pre-publication securities. company’sa for market the to relate may also information Material majo liquidity agreements,problems, and extraordinary ormanagement de proposals acquisition or merger change dividendresults, changes in previously-released example, earnings es for including, operations, Material information often relates to a company’s f to exists involve ahighlyfact-specificinquiry. test simple No materiality of assessments material; is securities. information when determine company’s a of price the information the disclosure of which may have a substantial effect on making his or her investment decisions. in Generally, this important includes any information that consider would investor reasonable Information is material where there is a substantial likelihood that a that use may who others knowledge totradesecurities(alsoknownas“tipping”). to information inside of the distribution prohibit also or laws information” These “inside information”. nonpublic on “material, based – instruments derivative and securities debt and equity including – securities trading from Funds Investment Alternative prohibit laws securities state and Federal Limitation onInsider Trading Arethereanyrestrictions onthetypesofactivities 4.1 skadden, arps, slate, meagher & flom llP and affilia Investments 4 Funds? otherwise? Fund’s portfoliowhetherfordiversificationreasonsor that canbeincludedinan Alternative Investment that canbeperformedby Alternative Investment

inancial results and timates, significant velopments. litigation, r , earnings s, iclg to: alternative investment funds 2019 “failure to deliver”. Short selling allows the inv theallowsselling Short deliver”. “failureto selle having borrowed the the requisite securities withoutand theref short sold are securities whereby refe generally selling short “Naked” date. later a the purchaser, with an obligation to replace the bo owned by the seller and may borrowing the same that securiti securities selling involves selling Short Short Sales in the ETF must meet all terms and conditions conta InvestmentFunds, and b an AlternativeInvestment Fun cent per 3 above investments permits specifically however,musthave obtained 12(d)(1exemptivean orderfrom Section by established limit aggregate cent certain registered, exchange-traded funds (“ETFs”) Finally, AlternativepermitInvestmentbe mayFunds made be must shares Fund Registered of purchase the ■ principal or depositor Fund’s Investment Alternative the ■ master-feeder a 12(d)(1), providedthatthefollowingconditionsaremet: to pursuant Fund Section of restrictions Registered the to subject not however,are arrangement, a in cash) than (other assets their of all invest that Funds Investment Alternative market money funds. The 3percentlimitismeasuredatthetimeofinvestment. including Fund”), “Registered a (each, company investment closed-ended or open-ended registered any of securities in the aggregate, more than 3 per cent of the total outstanding voting the by controlled entity own, not may Fund, Investment Alternative any and Fund Investment Alternative any that require provisions the to subject nevertheless that of (B)(i) and These Act. 12(d)(1)(A)(i) Sections of restrictions are they Act, Company Investment Although Alternative Investment Funds are not registered under the Investments inRegistered Funds cent orlessoftheissuer’s outstandingvotingsecurities. and if, as a result of such acquisition, the acquirer would hold 10 per of the HSR Act if the acquisition were for investment purposes only requirements these from exempt be however,would acquisition, an certain person having an aggregate value of $50 million (as adjusted). approve Such and acquired the of assets and securities voting of acquisition proposed review to the by triggered HSR be The Act’smay transactions. requirements officials government antitrust allow address be to to designed may intended are periods waiting and is notification Act the and concerns, Act HSR HSR the The to consummated. subject transactions before periods gas, waiting and requirements “HSR providing notification (the places 1976 Act”) those as (such Hart-Scott-Rodino the addition, Anti-TrustIn Improvements of companies Act service public insurancecompanies;and ■ of review ■ CFIUS including industries, defence-related casinosandgamingbusinesses; water railroads, ■ airlines, licences, broadcast ■ of owners bankholdingcompanies; ■ publicutilitycompaniesorholdingcompanies; ■ ■ the RegisteredFund. in (i) proxies: in Alternative the same proportion as the vote of all other shareholders of all the vote to whereby accordance with the instructions required of its security holders; or (ii) is arrangement Fund an Investment to pursuant controlled byaregisteredbroker-dealer; and person a or broker-dealer, registered a be must underwriter electric ortelephoneservices). a foreignperson; by business U.S. a of control in result could that transactions carriers andtruckingconcerns;

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estor to profit fromprofit to estor rrowed securities at ore may result in a es for delivery to ined in the order. beyond the 3 per s o practice a to rs r a nt be not may or ted to investin to ted ’ onn or owning r’s d’sinvestment . h ETF, The ). Alternative y theSECthat © Published and reproduced with kind permission byGlobal Legal Group Ltd,London ute, nte psil ecpin s h “ the is exception possible another Further, different Alternative Investment Funds directly or portfoli between information of sharing and trading formalinformation barriers areadopted thatpreven treated collectively as a “person” for the purposes securities.Alternative Investment offeredFunds managed by a single ad the of pricing the with ending statement or other offering document with the SEC a offeredthe initialsecurities;thefiwith(ii) or shorter period beginning: (i) five business days pr Perio Restricted 105 “Rule the during security such effect has person the if cash for securities equity prohibits any “person” from purchasing from a secon SEC Rule 105 of Regulation M under the Exchange Act 10 per cent or more from the prior day’s closing pr Regulation200(g)declinRulehaveofthat andSHO) securities that are not marked “short exempt” short(with on orders execute to ability the limits rule) “circ (the SHO de Regulation the of 201 meet Rule toAdditionally, time in borrowed be can security the necessarycovertotheposition hasreasonableor g theorder, e.g., the Firm, has already arranged to broker or dealer to accept short sale orders the unless limit to Act Exchange the under SHO Regulation concerns certain address associated with naked short selling, the SEC adopte and or deliver” In to “failures loss. the exacerbating thereby further, rise positionshortpricetheitselfcouldthecauseout Purchasing securities.such of cost, the increase availables thereduce would squeeze”,“shortwhich s such accumulate could participants market certain shortcoverpositiona availablewillbe purchafor secur the that assurance no be can There position. to securities those buying of Fund the to cost the limit of without increase price theoretically could security the that in loss, create unlimited sale theoretically short A prices. securities in declines skadden, arps, slate, meagher & flom llP and affilia iclg to: alternative investment funds 2019 filings withstates underBlueSkyLaws. sales similar to any subject are Funds and Investment Alternative online. Furthermore, sold; available publicly are amounts D Forms Filed the paid. commissions persons; related other and promoters directors, officers, executive issuer’s the of identity the D Form interests. its requires offerdisclosure of certain information about the fund, including: to continues fund the as long so for fund in which U.S. investors participate and must amend it annually such of closing first the of time the at D Form its a file must offer interests to Act Securities the of D Regulation under registration from exemptions the on relies that An Fund Investment Alternative Whatpublicdisclosuremustthe Alternative 5.1 Alternative the by borrowing disclosed inthefund’s offering materials. be must on risks attendant its and leverage restrictions the but Funds Investment no are There Are thereanyrestrictionsonborrowingbythe 4.3 exception, asdefinedinRule105. Disclosure ofInformation 5 Investment Fundoritsmanagermake? Alternative InvestmentFund? ling of the registrationtheof ling oa fide bona the person entering borrowthe security of Rule 105, unless of the securitiestheto of ior to the pricing of se. Consequently, se. securities to close to securities indirectly. ed a short sale in sale short a ed ice. in the meaning of roundsbelieveto ae o certain on sales tu increasing thus , t coordinationt of d Rule 203(b) of nd, in each case, ity necessary to necessary ity te ik f a of risk the s dary offering of oe te short the cover upply,thus and h underlying the eeal, all Generally, o managers of managers o d”, that is, the is, that d”, viser would be e t reduce to der ed in valueby in ed crte i a in ecurities (“Rule 105”) i breaker” uit n abuses and iey ae date. livery blt o a of ability purchase” ■ Liquidity Funds. Large liquidity fund advisers must provide must advisers fund Largeliquidity Funds. Liquidity ■ repor mustadvisers fund hedgeLarge Funds. Hedge adviser ■ investment the that funds manages: private of the types on focuses following reporting The advisers. investment smaller than information detailed more include must advisers investment These Large privatefundadvisers. This includesanyadviserwith: ■ requirements: by size into the following two broad groups with different reporting divided are advisers fund private group, this WithinPF. Form file must management under assets fund private in million $150 least Under these rules, only SEC-registered private fund advisers with at with respecttoPrivateInvestmentFundsunderFormPF. obligations reporting substantial adopted has SEC the addition, In register to advisers Form investment ADV,by used form the FilingswiththeInternalRevenueService. ■ ■ investment institutional Any Reporting. Portfolio SEC ■ The Securities. Equity of Ownership on Reporting SEC ■ public filings,including,butnotlimitedto,thefollowing: certain make must advisers their and Funds Investment Alternative fund’s exposures, leverage, risk profile and liquid advisersthesereportcertainmustinformation rela basis$50 least at of valueasset net a havingfund hedge position-level a and geographical on concentration. In addition, notfor e ass by turnover andexposures regardinginformation (and basis aggregated uds otois cran nomto rlvn t te risk the to relevant information certain portfolios, fund’s liquidity their of each in assets of types the on information under assets fund equity private in more or under billion $2 assets ■ fund hedge in more or billion $1.5 ■ money registered and liquidity in more or billion $1 ■ certain information regarding each Alternative Investment ■ management of background business and educational the ■ conflictsofinterest; ■ its or adviser the to relevant information disciplinary ■ theadviser’s feeschedule; ■ thetypesofservicesoffered byaninvestmentadviser; ■ with theSEC,whichrequirescertaindisclosureabout: by thefundmanager. position exercised authority voting of type the manager,and fund the containing SEC the information about with the equity securities under the discretion of reports quarterly file must year calendar a of end or the at securities million equity in more $100 over discretion investment with manager the of shares ofaU.S.publiccompany. cent per 10 than more acquires person a if required is reporting Additional acquisitions. such of days 10 within SEC the with report a file to company public domestic a of indirectly, acquires more than 5 per cent of any class of shares Securities Exchange Act requires any person who, directly or 120 daysoftheendfiscalyear. within annually, PF Form file must which management, 15 daysoftheendeachfiscalquarter. within quarterly, PF Form file must which management, quarter. Form PF quarterly, within file 60 days must of the end which of each fiscal management, under assets fund market prime and auditors, fund’sbrokers, custodiansandadministrators. amount, such to commitment pertaining information or owners, investment beneficial of minimum nature and number value, asset Fund managed by the adviser, including each fund’s gross and keyadvisorypersonneloftheadviser; employees; e usa tes www.iclg.com ach managed ity. ting to thatto ting 0 million,0 et class et t on an on t ) 285 usa 286 usa © Published and reproduced with kind permission byGlobal Legal Group Ltd,London www.iclg.com subjec are Funds Investment Alternative to advisers There are no outright restrictions on the use of si Istheuseofsidelettersrestricted? 5.4 See question5.1above. Whatarethereportingrequirementsinrelationto 5.3 the of owners indirect greater or a cent manager. Form ADV ispubliclyavailable. of per owners 25 direct of greater and or manager cent ADV per Form 5 The of disclosure offerings. requires such under invested amounts total private offerings require a disclosure of the number of investors and of of respect in character filings regulatory the and to “institutional”) (e.g. as investors assurances filings sky” require in “blue may participants their states under of some details though Funds, provide Investment to Alternative requirement no is There Arethereanyrequirementstoprovidedetailsof 5.2 Smallerprivateincludesadvisers.Thisfundall ■ advisers fund equity private Large Funds. Equity Private ■ skadden, arps, slate, meagher & flom llP and affilia disclose such information to all investors simultan letter,shosuchAlternativesideInvestment Fund a provide any F additional Investmentmaterial Alternativeinformation anto an i extent the to addition, rights,andterms that materially alterthe investm pref rights, control or voting the to modifications ter preferential Such any. if investment, their on A give other investors the the ability to assess the Fund, impa Investment Investment Alternative Fund should make the the disclosures reasona in investors ef adverse an have may that terms preferential with fund’s investors. Therefore, to the extent side le w conductfraudulentother in engaging orinvestors currentomisleadingmaterial factstatementsorof under Ru and Act Advisers the of 206 Section under duties the Advisers Act,which prohibit anadviser from ma netet opn Ats rnia rl concerning rule the principal of aspects Act’sregistered moneymarketfunds(Rule2a-7). certain Company or all Investment with complying a of has fund a policy which to extent the and funds the of profiles Alternative InvestmentFundsortheirmanagers? public (ornon-public)registerofbeneficialowners? keeping agency, forexamplethepurposesofa details ofinvestors)toanylocalregulatororrecord- managers establishedinyourjurisdiction(including investors) in Alternative InvestmentFundsor participants (whetherowners,controllersor institutions. financial in funds’investments their and financing bridge of leverage incurred by their funds’ portfolio companies, the use must respond to questions focusing primarily on the extent of risk and use of trading and clearing mechanisms. additionally for hedge funds, fund strategy, counte performan fund concentrationand and typesinvestor includes information adviseregarding size, they leverage, fundscred private the regarding information o report and year fiscal the of end the of days 120 Theseinvestment advisers mustfileFormannuall PF fund private large considered not are that advisers tters provide investors ct of such side letters de letters. However, entprogramme. In nvestor pursuant to eously. t and prospectiveand t rnil liquidity erential uld take steps to stepstake uld s nld any include ms bly necessary to ith respect to a to respect ith n are to agrees und t fiduciary to t et n other on fect other privateother rparty credit it providers, e 206(4)-8 le kingfalse dies advisers. lternative nly basic nly y withiny This . ce and, ce iclg to: alternative investment funds 2019 ws sgiiat neet a lat 0 e cn) f h fn) fund). the of cent) per 10 least (at interest company significant investor a investment U.S. owns the if rules a foreign CFC the of potentially passive (or treatment rules (“PFIC”) tax the the like under (much partnership) basis current a on income feeder onshore as the U.S. in in gains fund’sand the the income of share their include will generally investors in taxable business U.S. or trade below. U.S. discussed a in not is engaged fund the as as treated long so U.S. the in tax entity-level to subject it is formed in a non-U.S. jurisdiction, the fund generally will not be U.S. for partnership federal a income tax purposes. If as classified as a corporation, provided classified typically is fund master The any U.S.taxreportingobligationsshouldtheyarise. ensures that the feeder, rather than the investors, would be subject to feeder’s leverage used by the master fund. The offshore feeder’s corporate status also The from result would that UBTI any “blocks” classification jurisdiction. corporate and tax-neutral purposes a feeder tax in U.S. offshore organised for corporation an non-U.S. a through as thus invest classified (and investors partnership tax-exempt a U.S. as classified is transparent) for U.S. federal income tax purposes, while foreign and an that in feeder invest investors onshore taxable U.S. Typically, investments. all in interests for subscribe “feeder investors funds” that in turn all invest in one “master” fund that holds structure, this In structure. of type “master-feeder” a employ often contrast, by funds, Hedge corporations, REITSorothernon-transparententities. through investments such making by basis transparent or through flow- a on held if investors those for obligations reporting and tax U.S. the U.S. in will result would that investments any “block” to fund the allow in investors non-U.S. requirements for established reporting fund parallel or a Similarly, tax income to them directly subject might that income “block” that entities transparent non- other or (“REITS”) trusts investment estate real corporations, in investments through UBTI to rise give would that investments tax- any structures that U.S. fund parallel a in invest (“UBTI”). may investors exempt financed debt as treated income includes U.S. to which income”, business taxable subject “unrelated on tax income are federal investors tax-exempt U.S. certain example, For fund. parallel that in investors the for optimal is that manner the in investments of categories or investments portfolio particular of holding its structure to side-by-side fund parallel each a permits This manner. with in invest established that funds “mirror” often or “parallel” are several funds investment private of investors, categories different to relevant considerations tax the account elect to into take that structures accommodate to IRS order in above, noted As the with election “check-the-box” partnership classificationforU.S.federalincometaxpurposes. a filing by be may treatment obtained tax for corporate entities (such as Cayman limited companies) Transparent portfolio income. such the cash to of attributable receipt of the of share advance in their income in include earnings company’s to investors U.S. require taxable can which rules, (“CFC”) corporation foreign anti-deferral the controlled to subject be will investments portfolio the that equity likelihood the minimises Islands, Cayman non-U.S. the as such jurisdiction, significant make tax-neutral will a in entity non-U.S. a as fund fund the forming investments, the If tax income federal purposes. U.S. for transparent as are classified which are partnerships, funds investment private U.S.-sponsored Most What is the tax treatment of the principal form 6.1 Taxation 6 Alternative Investment Funds identified in question e usa tes s of 2.1? © Published and reproduced with kind permission byGlobal Legal Group Ltd,London – from the previous maximum rate of 35 per cent to the new rate of rate new the to cent per 35 of rate maximum previous the from – The Tax Act significantly reduced the U.S. federal corporate tax rate years in order to obtain long-term capital gain tre interests their held have to owners requires likely capitalsale.thegain on Althoughcompletelynot manager and general partner entities, they would ge thei sellpartnergeneral fund andmanager fund the th if Thus, inventory items).certainof value the e thepartnership to(exceptthe interestin his of of a partnership interest generally recognises capi g (subject to more favourable capital rates than ordinary inc long-term obtain to individuals for order us the to opposed (as years three least at for held gen “Taxassets (theAct”), Act”Jobs and “TaxCuts kno commonly 2017, December, in enacted legislation cont provisions interest carried under that, except e sponsor’s retai the to through income) flow they when dividendcharacter and/or gains capital include (whi fund the from partner general the to allocated t income federal U.S. current Under fund. the from inter “carried a of form the in receives it profits UnincorporatedBusiness Tax Newin York City)with franchise local or state certain to subject not is managergeneralfundthetheandpartner ththat so As noted above, the sponsors often form separate ve Taxthe underrates corporatesreduced tax of light in considered fede recently have some although U.S.purposes, for partnership a as classified entity an U.S. sponsors typically form the fund investment ma U.S. andtax-exemptinvestors,asnotedabove. non-U.S. non- for tax U.S. triggering avoids that manner or a in assets of sales and tax-exempt investments structure to U.S. steps additional take often with investors funds investment Private cent orless)oftheequityapubliclytradedcompany. per 5 (generally percentage minimum a below or debt of form the in was investment the unless obligations reporting and tax income federal U.S. to fund debt the subject would or USRPHCs in investments loans originated newly instruments may not qualify for the trading safe harbour. in Likewise, investments example, assets. For fund of holding sales or investments property structuring in considerations real States additional pose may United constraints These real (“USRPHCs”)). companies U.S. constitute substantial that holding entities property (or property real U.S. in taxation under the “FIRPTA” rules that can apply if the fund invests avoid to investments monitor typically managers Likewise, the fund. of behalf on U.S. the in activities manager’s the despite U.S. account, which ensures that the fund will not be subject to tax in the own fund’s the for securities investors or stocks in trading for non-U.S. harbour safe with funds a under qualify investments fund that ensure to investment steps take typically of managers U.S. at taxable is gain and ordinary incomerates.) income all that result gain the capital with long-term treatment, for potential the loses generally investor taxable individual investors. CFC tax treatment is similar except the U.S. to apply that limitations deduction itemised miscellaneous the flow through to investors and expenses of the fund are not subject to not do losses that including important, be partnership, may differences a certain of that to similar is treatment tax PFIC (Although skadden, arps, slate, meagher & flom llP and affilia iclg to: alternative investment funds 2019 Whatisthetaxtreatmentofprincipalforms 6.2 2.3? investment manager/adviseridentifiedinquestion xtent attributablextentto atment. tal gain upon a sale e equity owners of ownersequity e taxes (such as the as (such taxes est” or “promote” or est” ual 12 months) in months) 12 ual ome). The holder for at least three least at for clear,the Tax Act ained in U.S. tax U.S. in ained Act (see below). below).(see Act nerally recognise e generalpartnere hicles to serve as r interests in the interestsin r nager/advisor as a icm tax income ral ch profits may profits ch ax law, profitslaw, ax is treatment ains erally must be must erally corporating in corporating quity owners, quity respect to therespectto ter tax their n n s the as wn uidcin y esn f t ivsmns r ciiis n that in or transfer taxesonthefundorinvestors. activities withholding impose or may jurisdictions investments Non-U.S. its jurisdiction. of reason by jurisdiction the in establishment permanent a having as treated not is fund the U.S. certain Typically, to funds will endeavour to structure their investments subject so that be may itself) withholding taxesasdescribedbelow. fund the (or Investors to in thefundwithdebt. investment structures investment its finance that not does investor an that and UBTI) prevent fund investment private parallel a in investment or structure fund hedge master-feeder a of feeder a in structured is investment manner that “blocks” UBTI their (for example, investment in the that offshore provided tax transfer or U.S. tax-exempt investors are not subject to U.S. federal income tax to beexemptfromsuchwithholding. proposed Currently threshold). transfer a for order in requirements certification impose regulations business minimum or certain trade a U.S. to a (subject with connected effectively income to non-U.S. rise give would that assets has partnership the extent the by to persons interests partnership of redemptions or transfers on provision (Code Section 1446(f)) imposing 10 per cent withholding fund. the in interests The its of transfer or Tax new a contained Act tax generally applies to a non-U.S. investor’s participation in, or sale subject to tax under FIRPTA, no U.S. federal income tax or transfer that is treated as so engaged) and that the fund’s investments are not of their direct investment in a partnership or other transparent entity not treated as engaged in a U.S. trade or business (including by way Provided the fund is structured to ensure that non-U.S. investors are U.S. federal income tax purposes. U.S. taxable inv fund vehicle that is classified as a partnership (a TaxableU.S. Investors. eils o US U.S. for vehicles separate involve may structures These jurisdictions. non-U.S. and U.S. both in located are providers service other or employees key where structures complex more and different utilise may Sponsors manager/advisor entities willcontinueinpass-throughform. most that likely is it result, a As assets. the for basis tax (stepped-up) value market fair a obtain to order in acquire assets to prefer generally buyers potential and however, tax, of second-level a to subject be would corporation the from distributed Dividends corporation. a as advisor of and/or benefit manager the the forming consider U.S. may sponsors to result, favourably a more As apply corporations. may Act Tax the of provisions international the of certain addition, As corporations. to apply not do above described provisions interest carried the and taxes, these deduct to continue to corporations allows but taxes local and state The Taxcent. deducting per from 21 individuals prohibits also Act . Arethereanyestablishmentortransfertaxesleviedin 6.3 . Whatisthetaxtreatmentof(a)resident,(b)non- 6.4 osdrtos r rlvn t esrn ta te economic the that advisors minimisethelikelihoodofdoubletaxation. ensuring to arrangements among the different vehicles, the advisor pricing and the sub- relevant Transfer are jurisdictions. considerations sub- different and in advisor operating fund advisors main the between agreements advisory investor’s interest? Investment Funds? Alternative InvestmentFundorthetransferof connection withaninvestor’s participationinan resident, and(c)pensionfund investors in Alternative versus e usa tes Typically, taxableU.S.investorsa invest in o-.. evc poies n/r sub- and/or providers service non-U.S. www.iclg.com nd thus transparent) for estors generally will 287 usa 288 usa © Published and reproduced with kind permission byGlobal Legal Group Ltd,London www.iclg.com the fund. the of classification tax from income federal U.S. representations expected the on sponsor, and assumptions customary on based sponsor, the to opinion an render may funds investment private to counsel tax although U.S., the in obtained typically is ruling tax No Isitnecessary oradvisabletoobtainataxrulingfrom 6.5 fund makesinvestmentspotentiallysubjecttotaxunderFIRPTA. the if them to apply may rules favourable treaty.more a Certain of for are above non-U.S. investors, except to the extent they qualify for the benefits described funds consequences same pension the Non-U.S. tax, to subject income generally UBTI. federal to U.S. respect to with subject including not are they that position Pension Fund Investors. U.S. to subject withholding taxunlessitcomplieswithapplicablerequirements. be may IGA relevant a FATCA or under FFI an be to considered is that investor Anon-U.S. jurisdiction). relevant the in authority taxing the or IRS the to either ownership beneficial regarding information reporting entail will which IGA, the under requirements with complies institution the “IGA”), (an relevant jurisdiction a with agreement intergovernmental an into entered has U.S. the where (or, requirements other with complies and persons U.S. by ownership beneficial regarding information certain report to “IRS”) (the an Service Revenue into Internal U.S. enters the with institution agreement the unless payments other certain and interest dividends, source U.S. on tax withholding cent per 30 a to Act subject be will (“FFIs”), custodians non-U.S. and funds investment Compliance most Tax including institutions, Account financial foreign Foreign (“FATCA”), certain the under Separately, exempt fromthiswithholdingtax. dividend- dividends, is interest Certain U.S. the within sources from periodical interest, income (“FDAP”) or annual of determinable or share fixed other their and equivalents on rate cent per offshore feeder fund) may be subject to U.S. withholding tax at a 30 the structures, master-feeder fund hedge in (or, investors Non-U.S. new provision (Code Section 1446(f)) contained in t n withholdingdoescent per 10 thatensure to order fr obtained be to have may procedurescertification rep or taxsale or transfer of its interests income in the fund. Not federal U.S. obligationsshould apply tonon-U.S.a investor’s p no FIRPTA, under tax fund’sthethat and taxlocal andstate investments or other transparent entity that is treated as so e a business (including inby way of engagedtheir direct investme as treated not are investors non-U.S. Investors. Non-U.S. the result that all income and gain is taxable at o generally loses the potential for long-term capital individualinvestors. CFC tax treatment is similar miscellaneous itemised deduction limitations that a n arefund the investorsexpenses ofthroughandto losses that including important, be may differences (Although PFIC tax treatment is similar to that of investorownssignificant a interest (atleast 10p rule CFC the potentially (or rules (“PFIC”) forei company passive the under partnership) a of treatment (much basis current a on income in gains and income shar their include will generally investors taxable classifiedisfundinsteada theIf current basis. gains and fund’s income the of share their include skadden, arps, slate, meagher & flom llP and affilia an Alternative InvestmentFund? the taxorregulatoryauthoritiespriortoestablishing Provided the fund is structured to ensure that ensure to structured is fund the Provided U.S. state pension funds generally take the e, however, that certain rdinary income rates.) ngaged) or subject to s a corporation,a U.S.s ercent) ofthefund). a partnership, certain gain treatment, with except the investor pply to U.S. taxable are not subjecttonot are nt in a partnership articipationin, or ot apply under a underapply ot ot subject to thesubject to ot o te fund’s the of e he Tax Act. n noe n a on income in om the fund in fund the om n investment gn o o flow not do .. rd or trade U.S. i te U.S. the if s ie h tax the like orting iclg to: alternative investment funds 2019 Multilateral Convention on Mutual Assistance in Tax exchange of information arrangements (e.g. tax trea translateCRSintothedomestic law. CRSThesuppl theirexchange partner countries. Many countries h instituautomaticallyjurisdictionsthenexchangethat and financial from information financial annual participate.Under the CRS, participating countrie have who countries many for effect takenFATCA, has (“CRS standard reportingAutomatic Exchange Financialof commonAccountInformation OECD’s the Finally, under envisioned from fullycomplyingwithFATCA. data countries those and in institutions secrecy prevent as would that bank laws, protection as such impediments, guidance, law local address IGAs and The U.S. the with (“IGAs”) agreements intergovernmental regulations local FATCA through implementing are jurisdictions local Meanwhile, FATCA evidence compliancetopayors. to needed (“GIIN”) number identification intermediary foreign financial institution must use to register and receive a global each which portal, web internet its through and compliance facilitate to compliance FATCA for FATCAonline update to continue necessary & (“Q&As”) Questions Answers forms detailed and finalised have regulations IRS and Department Treasury U.S. The and reportingobligationsonU.S.funds. on certain payments they receive. FATCA also imposes withholding information report about the holdings of to U.S. taxpayers or face 30 per – cent withholding vehicles investment collective other and foreign funds requires investment FATCAnon-U.S. most including – institutions financial investments. and accounts offshore to stop U.S. taxpayers from evading U.S. taxes through undisclosed order FATCAin enacted 2010 Congress in HIRE Act the of part as treaties with LOB provisions (e.g., Poland and Hungary) are stalled are Hungary) and Poland (e.g., provisions LOB with treaties Certain rules. anti-conduit its and ratification awaiting protocols or treaties in or force in treaties tax its in articles (“LOB”) benefits on U.S. the abuse), treaty generally already satisfies the minimum of standard through limitation (prevention 6 Action to respect With non-U.S. from anti-hybrid provisions. dividends The instruments. for Treasury Department has proposed regulations with respect to or these transactions hybrid deduction certain in and the corporations interest and for deductions royalties denying provisions contained Act Taxthe mismatches), (hybrid 2 to Action respect Specifically,with is consideringothers. The U.S. has taken steps with respect to certain aspects of BEPS and . Whatstepshavebeenorarebeingtakento 6.6 intended taxtreatment. the confirming authorities tax relevant the from ruling tax a seek treatment of certain investments. In this tax case, it may non-U.S. be advisable to efficient most the obtain to funds the allow to order of form the in in investments jurisdictions non-U.S. in vehicles purpose special in investments non-U.S. certain make may Funds . Whatsteps arebeingtakentoimplementtheOECD’s 6.7 Reporting Standard? affect Alternative InvestmentFunds’ operations? information reportingregimessuchastheCommon Compliance Act 2010(FATCA) andothersimilar implement theUSForeign Account andTax (BEPS), inparticular Actions 6and7,insofarasthey Action PlanonBaseErosionandProfit-Shifting e usa tes s ares able toobtain ties and the OECD avetaken steps to informationwith Matters). ementsexisting in i their in tions , modelled, on hsn to chosen ) for ”) © Published and reproduced with kind permission byGlobal Legal Group Ltd,London tutrs ed o e es omn u t ter heightened their to due common less be compliance andotherrestrictions. to tend structures of types These requirements. other and distribution composition, asset including restrictions, of number a with compliance requires classes (e.g., real property, mortgages) and favourable tax treatment (“REMIC”s). conduits All of the foregoing are only suitable for certain investment asset mortgage estate real or (“RIC”s) companies investment regulated as classified trusts as such treatment, similar to entity level. Likewise, certain trusts gains or other entities may qualify for and income their shareholders, distribute REITs are not subject to U.S. federal they income tax at the Provided REITs. of investment in certain assets classes, such as real property in the case tax-efficient for allow may entities certain facts, the on Depending agreements bilateral into enter to providing forautomaticexchangeofCbCinformation. expected the currently based is IRS U.S. and Treasury The reporting. The CbC for template model OECD the on regulations billion. $850 of revenues CbC reporting by U.S. requiring parents of multi-national groups with annual regulations final releasing reporting), (country-by- (“CbC”) 13 country Action to respect with steps taken has U.S. The profits. of attribution the on report a of completion awaiting reportedly is U.S. the Withstatus), to establishment respect (permanent 7 Action in treatypartnercountries. treaty, combined with special tax regimes, to pay no or very low tax is tax model the in provisions draft utilising from The deductible taxpayer a prevent to base. intended through tax U.S. globe the erode the can that across payments income such shift easily can taxpayers that concern its stressed Treasury The interest. and royalties as in such income, taxation mobile to of respect with rates countries low certain for provide that regimes tax local from Tax negotiates Model tax treaties. The Treasuryit sought U.S. when to address template issues arising the as revised Treasury by used Income, a on Convention comment Treasury for the 2016, released In Department Senate. U.S. the in ratification awaiting skadden, arps, slate, meagher & flom llP and affilia iclg to: alternative investment funds 2019 disallowed income, taxable entities, adjusted pass-through from losses of business excess for cent deductions to per not amount 30 an to exceed interest deduction”), business 199A for “section deductions restricted (the entities pass-through through earned income business U.S. of types certain of share individuals’ for deduction cent per 20 a allowed taxes), advisory local and state and fees and management for for deductions and deductions (including itemised individuals most 2025 eliminated cent); through per the 25 from cent previous rates per 21 (to rate individual corporate the reduced permanently maximum the reduced 1986. since legislation the reform things, tax Taxother Among Act U.S. significant most the represents TaxAct enacted recently The Arethereanymeaningfultaxchangesanticipatedin 6.10 U.S. taxissuesdependingontherelevantfactsandcircumstances. issues. tax Amaterial other encounter may fund investment private income federal U.S. certain of summary general a is foregoing The Arethereanyothermaterialtaxissuesforinvestors, 6.9 Are thereanytax-advantagedassetclassesor 6.8 structures available?Howwidelyaretheydeployed? the coming12months? managers, advisersor AIFs? sponsors. the to as of any potential tax reform on uncertainty Alternative Investment Funds or their substantial effect is the and reform tax such any of details and timing likelihood, There entities. business of taxation to changes significant including priorities, legislative U.S. the of top their of one is reform tax federal U.S. that stated have Congress members and branch executive U.S. the Separately, in theUnitedStates. industry Funds Investment Alternative the about information more deal great a SEC the given also have They advisers. to applicable obligations compliance the increased have changes recent These financial system. U.S. the assist to U.S. the in risk systemic things, of assessment their in regulators financial other among designed, is PF Form in contained information The Congress. with and agencies regulatory other with shared be may and CFTC, and SEC the to only reported is that form confidential a is PF ADV,Form Form they Unlike advise. funds private the about information portfolio-level detailed over in $150 million in private fund assets under management described to report form reporting question 1.3. Form PF requires registered investment advisers with risk systemic CFTC’s and SEC’s Additionally, the Dodd-Frank Act led to the creation of Form PF, the required tofileannualreportswiththeSEC. (or state regulatory agencies) or are “exempt reporting advisers” and SEC the with registered be to required either are States United the in sold or offered are that Funds to Investment advisers Alternative all nearly 1.2), question in (described Act Advisers the to registered changes to apply that Dodd-Frank the Act’sof result a However,as advisers. investment obligations compliance and the reporting with comply to have not did result a as and Act Advisers the under registration from exempt were Funds Investment Alternative the in advisers. Prior to the Dodd-Frank Act, many investment advisers to change significant a regulatory regime governing Alternative represented Investment Funds and their Act Dodd-Frank The Whatreforms(ifany)areproposed? 7.1 2. Certain barriers to accepting non-accredited investors exist. exist. investors non-accredited accepting to barriers Certain 2. For these purposes, a “private fund” is any fund that would be 1. these areas. of many in guidance provide to months coming the in regulations further release likely will and regulations final and/or proposed and notices published have IRS and Department Treasury or U.S. the and income CFC for low-tax law.tax the income Taxof federal aspects Many uncertain, are Act income intangible F” global “GILTI”)), “subpart and made numerous other significant changes to the U.S. of (termed category shareholders new a imposed rules, CFC the of purposes for corporation” foreign “controlled of including indirectly, or directly definition the expanded interest), cent per owns, 10 a attribution, through person U.S. a which in of earnings accumulated on corporation non-U.S. (generally,a corporations” foreign “specified tax transition one-time a imposed Reforms 7 Endnotes ufcet nweg ad xeine n iaca and the evaluating financial of capable have in them make to experience investors matters business and non-accredited knowledge that sufficient requires 506 Rule but forSections3(c)(1)or3(c)(7) of that Act. Company Act Investment the under company investment an e usa tes www.iclg.com 289 usa 290 usa © Published and reproduced with kind permission byGlobal Legal Group Ltd,London www.iclg.com other and property personal includes calculation worth Net 3. skadden, arps, slate, meagher & flom llP and affilia euain wl b ual t acp non-accredited of accept 506 to Rule unable be to investors. will amendments D the Regulation of implementation of the opportunity to make general solicitations following the themselves avail addition, to wish In that Funds Investment Alternative fees. performance Non- charged be to eligible investment. are prospective the of accredited investors are unlikely to be “qualified clients” that risks and merits 0 as eoe uh ie ohr hn s rsl o the such of of amount result excess isconsideredaliability. the a residence, as primary than the of other acquisition time, such before days 60 an in Alternative Investment Fund exceeds interests the amount outstanding the of purchase individual’s the of time the indebtedness secured by the primary residence outstanding at of amount the if (ii) and liability, a considered is residence by the the primary residence in excess of the of value of the primary value secured market indebtedness (i) but fair excluded, is residence, primary the to up residence primary the by secured indebtedness of amount the primary as well as individual’sresidence, the of value the that provided assets, iclg to: alternative investment funds 2019 Email: [email protected] this of preparation the chapter. PamelaisaPartnerinSkadden’s Tax practice. in their Endreny of Lawrence assistance Pamela the colleague acknowledge to like would authors The Acknowledgment The solicitor disclosure is required to include: (a) the name of 5. triggers officials public to entertainment and gifts Providing 4. attributable tosuchasolicitorarrangement. differential the and fee advisory investment the to addition paid to the solicitor; and (f) the amount that will be charged in be the to or paid fees the of description a including arrangement by compensation compensated such of terms the be (e) referral; the will for adviser a solicitor (d) the adviser; that the statement and solicitor the between relationship the solicitor; (b) the name of the adviser; (c) the nature of the pension funds. “placement agents” as intermediaries when contacting public of use advisers’ investment on bans outright or restrictions imposed have entities and states of number a that note also Please well. as jurisdictions some in restrictions pay-to-play e usa tes © Published and reproduced with kind permission byGlobal Legal Group Ltd,London skadden, arps, slate, meagher & flom llP and affilia iclg to: alternative investment funds 2019 a poie a ie ra o lgl evcs o h croae idsra, iaca ad oenetl omnte aon te ol. e have We world. the financial servicescompanies. around communities governmental and financial industrial, corporate, the represented numerous to governments, many of Our the largest banks, including virtually all of the leading investment banks, and the major services insurance and legal locations. of 22 array in wide lawyers a 1,700 provided over has with centre financial major every in clients serving strategically positioned firms, offices across Europe, the U.S. and law Asia allow us proximity to our leading clients and their operations. For almost 60 world’syears Skadden the of one is Skadden to meettheirfiduciaryandotherlegalobligations. investment their them of enable to intended procedures and policies of development the reviews detailed conduct management, to administrative and marketing operations and to assist in asked often is she clients, these counselling When FINRA. of regulations and rules U.S. the and the Act Company Investment Act, U.S. Dodd-Frank the Act, Advisers Investment the of aspects various with compliance advice to broker-dealers and investment advisers, including regarding In addition, Ms. Cruz has extensive experience in providing regulatory investment in and funds investment private advisers. in invest to seeking operated on a global basis. She also represents institutional investors the establishment and to operation of relating private investment funds considerations marketed and and issues legal of spectrum broad a on clients advises Cruz Ms. funds, investment private to respect With and adviser investment of broker-dealer businesses. sale trading and operation and establishment, credit the equity, on private clients advises also She strategies. infrastructure traditional and strategies, including funds, single-strategy of and multi- funds equity private and hedge and funds equity private funds, including hedge products, investment private non-U.S. and U.S. of distribution and structuring the with connection Management Investment firm’s the in banks investment and advisers investment represents She of Group. member a is Cruz Heather R: www.skadden.com URL: [email protected] +19177772772 Email: +12127352772 Fax: Tel: USA New York, New York 10036 4 Times Square and Affiliates Skadden, Arps, Slate,Meagher&FlomLLP Heather Cruz FINRA. of regulations and rules the and Act, Company Investment U.S. the regulatory and Act, Advisers Investment U.S. corporate the with compliance general as such matters, related on represents clients advises also Rips private She Ms. in advisers. investment investments and accounts managed their funds, investment of aspects agreements. all in investors advisory institutional investment of offerings and private and funds international one of funds accounts, managed with connection equity in and funds, hybrid private and funds, hedge including U.S. funds, investment of distribution and structuring the with connection in advisers investment represents She Group. Management Investment firm’s the of member a is Rips Anna e usa tes R:www.skadden.com URL: [email protected] +19177773237 Email: +12127353237 Fax: Tel: USA New York, New York 10036 4 Times Square and Affiliates Skadden, Arps, Slate,Meagher&FlomLLP Anna Rips www.iclg.com 291 usa Current titles in the ICLG series include:

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