The release adopting Rule 18f-4 (the “Adopting Release”) devotes an entire section to discussing how “a fund that invests in other registered investment companies (‘underlying funds’)” should comply with the value-at-risk (“VaR”) requirements of the rule. This post considers three circumstances in which a fund investing in underlying funds:
- Does not invest in any derivatives transactions (a “Non-User Fund-of-Funds”);
- Allows its derivatives exposure to exceed 10% of its net assets (a “VaR Fund-of-Funds”) ; and
- Limits its derivatives exposure to 10% of its net assets (a “Limited Derivatives User Fund-of-Funds”).
We use the term “Fund-of-Funds” for convenience, meaning to include funds that hold both direct investments and underlying funds in compliance with Rule 12d1-4 or other exemptions.
Continue to the full blog post at The Asset Management ADVocate.