Funds of Hedge Funds

Question 1

What are the regulatory restrictions on ‘40 Act funds?

Answer 1

‘40 Act funds’ regulations –

1. Disclosure – Disclose holdings regularly.
2. Liquidity – Pay redemptions within seven days; at most 15% invested in illiquid securities.
3. Leverage – 300% asset coverage: limits leverage to 33% of assets.
4. Diversification/Concentration – For 75% of the portfolio, at most 5% with one issuer, at most 10% of an issuer’s outstanding voting securities, or at most 25% in one industry.
5. Performance fees – Incentive fees must be symmetric.