![]() ![]() Kramerica should not be aggregated into one combined exposure because the purpose of the “5%” rule is to highlight a fund’s “influence” over an investment through its indirect ownership.If the purpose of the “5%” rule is to highlight those indirect investments where the entity has a particularly large “exposure”, then aggregation would be appropriate to report this indirect exposure. Kramerica should be viewed as one combined investment between the two funds for the purposes of presenting in the SOI.Two arguments that can be made to this scenario include: Therefore, judgment will need to be applied and an accounting policy will need to be developed by the fund. Consider this example from one of the courses in our Investment Management Industry Fundamentals series:ĪSC 946 does not specifically address the issue highlighted in this example and only provides the principle already covered above. The next issue is a little more complicated.Obviously, judgment will need to be applied here largely based on the significance of the investment. The FoF may consider disclosing interim or unaudited information and note this in the disclosure as this may be more useful to the users of the financial statements. When considering this issue, note that ASC 946 states that “if information about the investee’s portfolio is not available, that fact shall be disclosed” however, this “out” should not be used without contemplation. Do you see a problem? By the time audited financial information is available for the investee fund, it may be too late for the FoF to consider and prepare its own financial statements. Let’s assume the FoF has a reporting date of December 31 and has an investment in an investee fund that also has a December 31. The first issue is purely an administrative one. ![]() Let’s take a look at just a couple quick ones: This requirement seems reasonable, but often presents some interesting application issues. If they hold a 20% interest in Fund A and that fund holds an investment in a Company X common stock with a fair value of $300,000, the investment in Company X would be required to be presented/disclosed separately as a result of the “look through” requirement (i.e. those investments held by the investee funds held by a FoF) whose proportional share ownership represent more than 5% of the reporting entity’s net assets be either included in the SOI or in a note to the schedule.įor example, let’s assume a FoF has net assets of $1 million. ASC 946-210-50-9 requires that indirect investments (i.e. When preparing the SOI for a FoF, some interesting presentation issues arise.įirst of all, when a FoF, or any investment company for that matter, has an investment in another fund, for purposes of the SOI, that direct investment in the fund is considered the investment for purposes of complying with all the categorization and individual presentation requirements.īut does this requirement provide enough transparency to understanding the investments and exposure for a fund? Are the underlying investments held by the investee fund important information that should be disclosed? ASC 946 says…maybe!Īs we’ve already noted, although the general principle is that the direct investment in the investee fund is considered “the investment” for purposes of preparing a SOI, a separate “look-through” consideration must be given for investments in other funds. Each investment that represents more than 5% of net assets must be presented separately within those categories.Ī fund-of-funds (or FoF) is an investment company that invests primarily in investment companies. common stocks, preferred stocks, convertible securities, fixed income securities, etc.), country or geographic region, industry, and derivatives (by broad category of underlying). investment partnerships not registered with the SEC), investments must be categorized and presented by type of investment (e.g. GAAP requires a Schedule of Investments (or SOI) to be presented. Due to the obvious focus on investments, U.S. One of the interesting things about investment companies under ASC 946, and a focus in our Investment Management Industry Fundamentals baseline training program, is the unique financial reporting requirements that are unlike those of any other industry. ![]()
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