On December 16th, the SEC announced in a press release that they have approved certain amendments to the Advisers Act custody rule (Rule 206(4)-2). Amendments to this rule were originally proposed in May 2009. The final rule was released on December 20, 2009 and incorporates many of the amendments proposed in May, but also contains several modifications to the May 2009 proposal particularly with respect to the impact on advisers to pooled investment vehicles.
The Release actually makes a number of specific suggestions for additional compliance procedures that should be considered.
A few highlights of the final rule amendments include:
(1) The annual surprise custody exam requirement will NOT be applicable to advisers to pooled investment vehicles that are subject an annual financial statement audit requirement (GAAP) and audit is performed by an independent public accountant that is registered with, and subject to regular inspection by, the PCAOB.
*This a great development for private fund advisers.
(2) Under the Custody Rule, the delivery deadline for audited financial statements with respect to a pooled investment vehicles is stated as 120 days, although the release specifically provides that the amended rule does not affect the SEC’s view as stated in a 2006 No-Action Letter which provided that deadline for FOFs is 180 days (in that the SEC would not recommend enforcement against FOF adviser that met the 180 deadline). As such, FOF advisers will have 180 days to deliver the audited financial statements to investors.
(3) To the extent that an adviser advises non-fund managed account clients in addition to pooled investment vehicles – such advisers may be subject to the annual surprise custody exam requirement with respect to those clients.
(4) Provisions in the amended Rule with respect to new ADV disclosures will generally be applicable to ADV annual amendments made after January 1, 2011.
You can view HedgeOp’s full summary memo on the new custody rule changes here.
