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More Information for Asset Managers to File With the Government — Proposed Form SLT

May 2, 2011

Introduction

On March 31‚ 2011, the U.S. Treasury Department released the final draft of Form SLT (and corresponding instructions), a new proposed reporting form that is part of the Treasury International Capital (TIC) data reporting system. Form SLT is designed to gather information on cross-border ownership of long-term securities by U.S. and foreign residents‚ for use by the U.S. government in forming international financial and monetary policies and in preparing the U.S. balance of payments accounts and U.S. international investment position.

Who Must Report

All U.S. individuals or entities (i) who qualify as U.S.-resident custodians‚ issuers and/or end-investors (e.g.‚ funds), and (ii) whose consolidated Reportable Securities (as defined below) exceed $1 billion as of the last business day of the reporting month‚ would be required to file Form SLT.

Where Reportable Securities are held by a U.S.-resident custodian‚ however, a Form SLT report covering these securities would be due from the custodian and not the beneficial owner of the securities. For these purposes‚ the term “custodian” would include (i) a bank or other entity that manages or administers the custody or safekeeping of securities (e.g.‚ stock certificates‚ debt securities‚ etc.) or other assets for institutional or private investors‚ and (ii) a central securities depository (e.g.‚ the Depository Trust and Clearing Corporation). A “U.S.-resident” custodian would be a custodian that is legally established in the U.S.‚ and would include branches‚ subsidiaries and affiliates of foreign entities located in the U.S. It appears‚ therefore, that a U.S.-based prime broker‚ as well as a U.S.-based bank custodian‚ would qualify as a U.S.-resident custodian for reporting purposes.

What Must Be Reported

Generally‚ “Reportable Securities” would include all “long-term” securities (i.e.‚ those having an original maturity of more than one year or no contractual maturity) that are issued by U.S. residents and owned by foreign residents for investment purposes‚ as well as U.S.-resident holdings of “long-term” foreign securities for investment purposes. Equity interests or other securities issued by funds or similar investment vehicles (e.g.‚ interests issued by a non-U.S. master fund to a U.S. feeder fund) would qualify as Reportable Securities.

For foreign-resident holdings of U.S. securities, the reporting party would be required to disclose (i) the foreign holder’s residence‚ (ii) the fair market value and type of U.S. security, and (iii) whether the foreign holder is a “foreign official institution‚” which includes national governments, international and regional organizations, and sovereign wealth funds.

For U.S.-resident holdings of foreign securities‚ the reporting party would be required to disclose (i) the residence of the foreign issuer and (ii) the fair market value and type of foreign security.

Impact on Investment Advisers

In general‚ investment advisers would report as representatives of the funds and other entity clients they manage or sponsor‚ as end-investors or issuers. The term “fund” would be defined broadly to include‚ among other things‚ hedge funds, private equity funds and mutual funds. An investment adviser would file one consolidated report covering the Reportable Securities for all U.S.-resident parts of its own organization and for all U.S.-resident entities it manages or sponsors‚ assuming that the fair market value of the Reportable Securities exceeds $1 billion combined and they are not held by a U.S.-resident custodian. If an investment adviser‚ therefore‚ manages multiple funds and other entity clients‚  each with different structures‚ investment strategies‚ etc.‚ and the combined fair market value of the Reportable Securities for the funds and other entity clients exceeds $1 billion (and, again‚ they are not held by a U.S.-resident custodian)‚ the adviser would file a single report on behalf of all of the entities.

By way of example‚ where a U.S. investment adviser manages a U.S. master fund with Cayman and U.S. feeder funds‚ the adviser would‚ on behalf of the U.S. master fund as an issuer‚ report the Cayman feeder fund’s investments in the U.S. master fund as foreign ownership of U.S. equity interests. Similarly‚ where a U.S. investment adviser manages a Cayman master fund with U.S. and Cayman feeder funds‚ the adviser would, on behalf of the U.S. feeder fund as an end-investor‚  be required to report the U.S. feeder fund’s investments in the Cayman master fund as U.S. ownership of foreign equity interests.

Investment advisers would not be required to report direct investments. A direct investment is the ownership or control of 10% or more of an entity’s voting securities or equivalent interests. The definition of “direct investment” in the Form SLT instructions also provides: “Limited partners in a partnership do not have voting rights and therefore cannot have direct investment.” The instructions to Form SLT state that U.S. residents in direct investment relationships should contact the U.S. Department of Commerce Bureau of Economic Analysis for possible reporting requirements.

Finally‚ if an investment adviser is reporting on behalf of an issuer and/or end-investor and the investment adviser also is a U.S.-resident custodian, it would be required to complete both Parts A and B of Form SLT.

Timing

In 2011‚ Form SLT would be filed quarterly, as of the last business day of each quarter starting with June 30‚ 2011. Beginning in 2012, Form SLT would be filed monthly‚ as of the last business day of the month in which the $1 billion threshold is exceeded. Investment advisers should be aware that, even if an investment adviser were to cease managing at least $1 billion in consolidated Reportable Securities at some point after filing Form SLT‚ it nevertheless would be required to submit a report for each remaining reporting date in that calendar year‚ regardless of the total fair market value of the consolidated Reportable Securities on any such date. Form SLT would be required to be submitted to the Federal Reserve Bank of New York no later than the 23rd calendar day of the month following the applicable reporting date (or the next business day‚ if the filing date falls on a weekend or holiday).

Confidentiality

The confidentiality of data reported on Form SLT would be maintained by the Treasury‚ the Board of Governors of the Federal Reserve System and the Federal Reserve Banks acting as fiscal agents of the Treasury. The data‚ however‚ would be allowed to be provided to the Board of Governors of the Federal Reserve System and to other federal agencies‚ and aggregate data obtained from reports on Form SLT would be allowed to be publicly disclosed‚ but only in a manner that would not reveal information as reported by any individual respondent.

End of Comment Period

The comment period on Form SLT ends May 5, 2011.

Conclusion

The Federal Reserve Bank of New York held a seminar on Form SLT on April 5‚ 2011. Investment advisers may view the webcast of the seminar, and download the items handed out at the seminar‚ through July 20‚ 2011. Form SLT and the instructions may be found here.

Please direct any questions to any of the listed lawyers or to any other Bingham lawyer with whom you ordinarily work on related matters.

Investment Management Partners:

Marion Giliberti Barish
marion.barish@bingham.com, 617.951.8801

David C. Boch
david.boch@bingham.com, 617.951.8485

Lea Anne Copenhefer
leaanne.copenhefer@bingham.com, 617.951.8515

Steven M. Giordano
steven.giordano@bingham.com, 617.951.8205

Michael Glazer
michael.glazer@bingham.com, 213.680.6646

Richard A. Goldman
rich.goldman@bingham.com, 617.951.8851

Barry N. Hurwitz
barry.hurwitz@bingham.com, 617.951.8267

Roger P. Joseph, Practice Group Leader; Co-chair, Financial Services Area
roger.joseph@bingham.com, 617.951.8247

Amy Natterson Kroll
amy.kroll@bingham.com, 202.373.6118

Michael P. O’Brien
michael.obrien@bingham.com, 617.951.8302

Nancy M. Persechino
nancy.persechino@bingham.com, 202.373.6185

Paul B. Raymond
paul.raymond@bingham.com, 617.951.8567

Toby R. Serkin
toby.serkin@bingham.com, 617.951.8760

L. Kevin Sheridan Jr.
kevin.sheridan@bingham.com, 212.705.7738

Edwin E. Smith, Co-chair, Financial Services Area
edwin.smith@bingham.com, 617.951.8615

Stephen C. Tirrell
stephen.tirrell@bingham.com, 617.951.8833

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