Reporting Requirements for Private Fund Advisers Under the Department of Treasury’s Benchmark Survey on Form SHC Due March 3, 2017

February 17, 2017

A US resident private fund adviser that invests overseas or which sponsors offshore funds may be subject to reporting requirements under the Department of Treasury’s Form SHC.  The deadline for submitting Form SHC is March 3, 2017. 

Form SHC is part of the Treasury International Capital (TIC) System, which collects data that the US Federal Government uses to determine the US balance of payment accounts and the US international investment position, and in the formulation of international economic and financial policies.  Information reported on TIC is confidential.  The Federal Reserve Bank of New York ("FRBNY") administers TIC on behalf of the Department of Treasury.  Form SHC is used to conduct a "benchmark survey" of holdings in foreign (i.e. non-US) portfolio securities by US investors once every five years.  Certain financial institutions may be required to report their holdings in foreign portfolio securities more frequently, but only if they receive notice to that effect from the FRBNY. 

The following is a high-level summary of the applicable reporting requirements under Form SHC:

1. Form SHC applies to all US resident "custodians" and "end investors" (together "Reporting Persons") that hold investments in foreign portfolio securities.  Based on the instructions in the Form, it appears that most private fund advisers would be considered "end investors" for this purpose.
   1. In general, whether a security is a "foreign security" is determined by reference to the jurisdiction in which the issuer has been organized.  Thus, any security issued by any non-US legal entity is considered a foreign security, even if the security is denominated in US dollars and trades in US markets. 
   2. A "portfolio" security is any security that is not a "direct investment."  A direct investment is generally defined as an equity investment in which the holder has a 10% or greater voting interest in the issuer.  Direct investments are subject to a separate reporting regime administered by the Bureau of Economic Analysis (BEA) and need not be reported on Form SHC.[1]  Investments taking the form of limited partnership interests are considered to be portfolio securities (regardless of the percentage ownership interest represented by the limited partnership interest), because limited partnership interests are not considered voting securities for this purpose.  Conversely, a general partner interest in an offshore limited partnership is considered a direct investment.
2. Form SHC is comprised of three parts (or "Schedules"):
   1. Schedule I is required to be completed by all Reporting Persons who have either received notice from the FRBNY that they are subject to Form SHC reporting requirements or who are otherwise required to report data on either Schedule II or Schedule III (see below).  Schedule I requires a Reporting Person to provide basic information identifying itself and summaries of the information provided in the Schedule II and Schedule III reports submitted by the Reporting Person.
   2. Schedule II applies to any holdings in foreign portfolio securities that a Reporting Person (i) holds directly, (ii) holds through a US-resident or foreign central securities depository, or (iii) holds through a foreign-resident custodian, provided that the total aggregate amount of such holdings exceeds $200 million.  If a Reporting Person’s aggregate holdings in such securities is below the $200 million threshold, the Reporting Person is exempt from Schedule II reporting requirements.  If aggregate holdings in such securities exceeds the $200 million threshold, the Reporting Person must complete a separate Schedule II for each foreign security it holds that falls into one of the above three categories, including detailed information as to the type of security, amount held, and the fair market value of such holding.
   3. Schedule III applies to any holdings in foreign portfolio securities that a Reporting Person maintains though a US-resident custodian, provided that the total aggregate amount of such holdings exceeds $200 million.  If a Reporting Person’s aggregate holdings in such securities is below the $200 million threshold, the Reporting Person is exempt from Schedule III reporting requirements.  If aggregate holdings in such securities exceeds the $200 million threshold, the Reporting Person must complete a separate Schedule III for each US-resident custodian that it uses, reporting the identity of the custodian and the total value of the foreign portfolio securities held through that custodian. 

Form SHC filings may be submitted electronically using the Federal Reserve Reporting Central System.  Use of the System is mandatory if the end investor is submitting more than one hundred Schedule II reports.

Copies of the Schedules to Form SHC, and the instructions for completing them, can be found at http://ticdata.treasury.gov/Publish/shc2016in.pdf.

Clients are urged to speak to their Gibson Dunn contacts if they have any questions or concerns regarding these or any other regulatory requirements.

  [1]   The BEA’s reporting requirements apply to any direct investment that exceeds $3 million in size (whether by a US investor overseas or by a non-US investor in the US), even if the BEA has not provided notice to the applicable investor that a reporting obligation applies.  Which BEA Form applies, and the extent of the reporting person’s reporting requirements, depends on the size and nature of the direct investment.