Special Alert
Hedge Fund Managers beware the new Ides of March
Once again the onus has been put on the financial community to be the eyes, ears and to a lesser
extent an enforcement arm for various governmental agencies with respect to foreign investment
by US persons and entities. Faced with the prospect that the previously announced mandatory
regulatory filing (Treasury International Capital “TIC” Form SLT, Aggregate Holdings of Long-Term
Securities by U.S. and Foreign Residents) might only derive somewhat limited information and
have little effect in the financial area because of its exemption for foreign reportable holdings of
under $1 billion dollars, the TIC by virtue of the Federal Reserve Bank of New York decided to
alter the playing field again and seek pertinent information under the guise of a 5 year benchmark
survey. TIC Form SHC, Report of U.S. Ownership of Foreign Securities, including Selected Money
Market Instruments, will be required to be filed by Mar. 2, 2012 with respect to the fair value of
assets held as of Dec. 31, 2011 where that amount exceeds a much lower dollar threshold of $100
million.
For these purposes the definition of foreign reportable securities has been greatly expanded and
the amount of information to be reported similarly increased. They include equity interests
representing an ownership in a foreign-resident organization. The broad list of equity interests
include common stock, preferred stock, restricted stock, depository receipts, U.S. resident limited
partnerships in foreign resident limited partnerships , other securities such as privately placed
equity interests AND shares, units or similar equity interests in foreign-resident funds including
mutual funds, exchange traded funds, private equity companies, venture capital companies,
investment trusts, commingled funds, hedge funds and similar investment vehicles. Also foreign
for this purpose is determined based on jurisdiction in which it was organized, irrespective of
where assets are held.
As a fund manager you need to examine foreign securities held by U.S. funds as well as interests
in offshore master funds held by U.S. feeder funds. If in the aggregate you manage more than
$100 million in these reportable securities you need to file Form SHC. Several schedules need to
be completed depending on whether those interests are held through U.S. resident custodians or
non-U.S. custodians and there are very specific rules as to the information required and how it is
to be filed. Given the broad range of foreign reportable securities, although there are several
investments that may be excluded, you must make the determination now as to your obligation to
file Form SHC. Failure to do so can attract penalties ranging from $2,500 to $25,000. Willful
failures can incur a penalty of $10,000 and imprisonment of up to a year.
The survey is once every 5 years with the next filing due with respect to the 2016 tax year.
However, depending on the information submitted the Federal Reserve Bank of New York can
request a more frequent filing. While we are hopeful that your legal advisers have kept you
apprised of this onerous benchmark survey, we wanted to make sure you were fully aware of it
and attentive to the tight filing deadline of Mar. 2, 2012
For more information, please contact Richard Nichols, Partner at 212.372.1135, Martin Lax,
Partner at 212.372.1208, or your local McGladrey & Pullen financial services representative.
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