Managed Investment Schemes: Hedge Fund Disclosures

Hedge Fund Disclosures Web
7
Mar

Managed Investment Schemes: Hedge Fund Disclosures

07.03.14

SCOPE

Where a Responsible Entity (RE) for a hedge fund or fund of hedge fund offers product to retail investors in Australia, ASIC has released RG 240 (effective 1 February 2014) which requires greater disclosures to be made by RE’s. 

The RG includes a definition of a hedge fund to assist RE’s in determining if the RG is applicable to the funds they operate. This definition indicates a fund is one that is promoted as a hedge fund or that exhibits two or more of the following characteristics of a hedge fund:

  • Complexity of investment strategy or structure (determined by reference to multiple interposed entities)
  • Use of leverage
  • Use of derivatives (other than for the dominant purpose of managing foreign exchange or interest rate risk, gaining economic exposure on a limited temporary basis, or the use of exchange traded derivatives)
  • Use of short selling
  • Charging a performance fee out of the fund's assets

A fund of hedge funds is one which has 35% of the fund’s assets invested in schemes whose assets meet the above definition or is promoted as a hedge fund of funds.

For each fund that you act as RE for we recommend comparing the fund mandate, investor base and investing activities to the above definition to determine if RG 240 is applicable.

 

DISCLOSURES

The disclosures are required for benchmarks being valuation and periodic reporting as well as disclosure principles as follows;

  • Valuation – the fund’s non exchange traded assets are independently valued. The RE should also have their own expertise to monitor the expertise of independent valuers. 
  • Periodic reporting – up-to-date periodic reporting on key information, including in relation to asset allocation, the liquidity and maturity profiles, leverage ratios, derivative counterparties, investment returns and key service providers.
  • Disclosure Principles – covering the fund’s:
    • investment strategy
    • investment managers and other key people responsible for managing the fund's investments
    • investment structure
    • valuation, location and custody of assets
    • liquidity
    • use of leverage
    • use of derivatives
    • use of short selling
    • withdrawals policy

There is a transition period in which the new disclosure statements can be displayed on the RE’s website and existing PDS’s remain in circulation. New PDS’s will need to comply with RG 240.

As a RE you will need to include internal procedures to ensure existing new funds are tested for the definition of a hedge fund, and then establish procedures to comply with the disclosure requirements or state why they are not being followed.  ESV can work with your responsible officer and compliance team to ensure your internal policies and procedures comply with the RG.  Should you require such assistance, please contact Tim Valtwies on 02 9275 0133 or contact your applicable ESV engagement partner.

 

Article by Tim Valtwies