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July 1, 2014

 

Dear Friends,

 

Recently the SEC provided guidance on the application of the Custody Rule to private funds utilizing special purpose vehicles (SPVs) or post-closing escrow accounts.

  • SPV: Generally, as long as an SPV is owned by the investment adviser, the adviser’s related person(s) or pooled investment vehicle(s) controlled by the adviser or the adviser’s related person(s), SPVs do not have to be treated as separate clients, and thus the adviser does not have to separately comply with the Custody Rule’s audited financial statement distribution requirement.
  • Escrow Accounts: Commingling client funds with other non-client assets in an escrow account, for a limited period of time, in connection with the sale of a portfolio company, would not violate the Custody Rule under certain circumstances outlined in the release, including ensuring the escrow account is maintained by a qualified custodian.

Please click here for a link to the SEC’s release. Please feel free to contact us with any questions at (212) 867-0200 or email us at info@counselworksllc.com.

 

Thank you,

 

CounselWorks

About CounselWorks LLC

CounselWorks is a strategic business and regulatory consulting firm, that provides project-based consulting and manages compliance and regulatory programs for hedge funds, private equity firms, investment companies, broker-dealers and investment banks.
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