Written by Michael Wu
In early March, Pillsbury submitted a comment letter to the North American Securities Administrators Association (NASAA) on behalf of the private fund industry regarding NASAA’s proposed model custody rule. Please see here for more information. NASAA has recently confirmed that it has changed a key component of the proposed model custody rule, which required quarterly disclosure of transaction-level data, and will re-open the proposal for a second round of comments. NASAA’s original proposal would have required a private fund adviser to provide detailed quarterly statements of fund trading activity to each investor in its fund(s). Jay Gould, a partner with Pillsbury Winthrop Shaw Pittman LLP and the author of a comment letter to NASAA on behalf of the California Hedge Fund Association and the Florida Alternative Investment Association, stated that “the level of detail [required by the proposal] in many cases would be so overwhelming that it would be useless for any investors but detrimental to the managers executing their strategy.” In response to this comment letter and other comment letters, NASAA’s board of directors instructed its investment adviser section group to re-examine the provision. NASAA has indicated that the new proposal will likely require only aggregate fund data, rather than transaction-level data, to be disclosed quarterly to investors. We will continue to monitor NASAA’s proposed rule and post any new developments.