In IM Guidance Update No. 2013-05, the staff of the SEC’s Division of Investment Management provided further guidance on disclosure and compliance matters relating to the use of derivatives by registered funds. The Guidance Update echoes staff positions on disclosure in registered fund registration statements relating to derivatives use and related risks provided in the 2010 staff guidance on derivatives use by registered funds described in the August 17, 2010 Financial Services Alert. Following a discussion of the role of disclosure review in fund compliance programs and SAI disclosure regarding a fund board’s role in risk oversight, the Guidance Update notes that the Division has created a Risk and Examinations Office that is responsible for analyzing and monitoring the risk management activities of investment advisers, investment companies, and the investment management industry. This newly formed group has begun to work closely with the SEC examination staff to make onsite visits to investment management firms designed to increase the staff’s understanding of firms’ risk management activities, including risk management activities related to commodity interests and other derivatives. Acknowledging rule changes adopted by the CFTC to harmonize its regulation of registered fund CPOs with SEC regulation of the funds themselves, the Guidance Update states that the staff will not object if a fund whose adviser CPO is seeking to rely on the “substituted compliance” now permitted under CFTC rules includes the required CFTC legend in the prospectus legend regarding the absence of SEC approval or disapproval of the fund offering required by Rule 481 under Securities Act of 1933. (See here for more on the CFTC’s substituted compliance regime for registered fund CPOs.) The Guidance Update also provides reminders of staff positions on the use of an adviser’s related performance in fund registration statements.
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