Insights

Effective treasury management is essential to maintain financial stability, optimize cash resources, manage financial risks, and make informed financial decisions to support growth and profitability.  When a fund’s treasury operations lack centralization it leads to inefficiencies, increased risks, and limited visibility into the fund’s overall cash position. Furthermore, manual processes for cash forecasting, bank reconciliations, and payments are time-consuming and prone to errors. Gen II recognized the need for a comprehensive treasury management solution to optimize its treasury operations, mitigate risks, and enhance financial decision-making.

Treasury management software enhances the efficiency, accuracy, and security of financial operations for private equity firms, enabling them to make better-informed decisions and manage risk effectively in a competitive financial landscape.

Hazeltree software provides innovative cloud-based treasury solutions to investment management firms, delivering enhanced transparency, liquidity, improved performance, and risk mitigation.

• Increased Controls & Security – Standardized treasury processes utilizing a centralized platform with workflows, segregation of duties, access control, and audit logs. Hazeltree will securely store all settlement instructions for all payees.
• Cloud Based Computing – allows you access to transactions anywhere at any time to approve or view the most up-to-date information related to your pending or completed transactions. This allows for quicker release of transactions and reduces time to research transactions.
• Electronic communication with banking partners – utilizing the SWIFT messaging network, Gen II will be able to electronically communicate with participating financial institutions for streamlined money movement, eliminating the need for you to log into banking platforms to initiate, release, or view transactions.
• Streamlined Reconciliation – utilizing Hazeltree’s cash reconciliation module, Gen II will be able to efficiently reconcile bank-to-book transactions, alerting you to irregularities in a timely fashion.
• Consolidation of Operations – Gen II has formed a Treasury Operations team to centrally manage all funds transfers on one team. The team will serve as a single point of entry for all payment execution as well as updating and maintaining standing settlement instructions, further securing the money movement process. We expect this centralization of functions will allow the accounting teams to focus on more core responsibilities for our clients.

For more information about Gen II’s implementation of HazelTree, please contact your Gen II Client Service Fund Manager or Matthew Cammer at MCammer@gen2fund.com

While April 15th may be the most notable, there are plenty of other tax deadlines you don’t want to miss.

Unlike others, Gen II Tax Services is a full-year tax partnership rather than a short-term relationship focused only on your tax filings. Our Tax teams continuously maintain and monitor your data throughout the entire year, providing early insights that allow you to make proactive decisions regarding your tax filings.

Gen II Tax Services is a full-service tax offering focused solely on private equity funds and their partners’ unique needs. Our comprehensive, practical approach focuses on partnering with clients to assist with planning and compliance requirements for the combined benefit of all stakeholders. With our deep private equity expertise, knowledge of our clients’ unique fund structure, and the maintenance of their fund data, Gen II is uniquely positioned to deliver both tax and fund accounting needs.

If you have any questions or need assistance preparing your tax return, contact us at tax@gen2fund.com.

Private fund advisers will be aware of the recent surge in regulatory scrutiny and consider the significant impact and challenges that come with the new Form PF amendments.

In 2023, amendments to Form PF were implemented to provide the SEC with a more thorough understanding of the hazards presented by private funds and to better enable them to recognize and respond to potential systemic risks.

The amendments mandate large hedge fund advisers and all private equity fund advisers to file current reports upon the occurrence of specific reporting events that could signify significant stress at a fund or harm to investors. Large hedge fund advisers must report these events within 72 hours, while private equity fund advisers must report every quarter within 60 days of the quarter’s end.

Large private equity fund advisers must fulfill additional requirements, such as submitting annual reports on general partner and limited partner clawbacks, as well as provide more data on their strategies and borrowings. These amendments are set to become effective six months and one year after publication in the Federal Register for current and remaining amendments, respectively.

Ensure your Form PF is filed accurately with Gen II
Not only does Form PF involve adhering to strict filing deadlines, but it also requires an understanding of complex calculation methodologies and deep knowledge of the fund’s activities. Therefore, many firms choose to outsource this task to specialized fund administrators who have the necessary expertise and systems to complete these filings accurately and on time.

Gen II Fund Services has a robust and scalable regulatory reporting solution that helps our clients with complex reporting needs.

• Gen II Regulatory Reporting Platform is a centralized regulatory reporting tool for multiple filing requirements across various jurisdictions.
• Our Reporting Platform is built on modern architecture for scalability, data integrity, security, and compliance.
• With the industry’s most comprehensive unified data model, our Reporting Platform ingests one data set to feed and populate multiple forms, including Form PF.

This year, Gen II introduced Online Self-Service Regulatory Reporting capabilities, allowing our clients to review data using our exception base engine, approve their reporting, and file directly with FINRA. This eliminates the paper-based process and significantly reduces the cycle times and risk.

Gen II Compliance Services for Form PF

Form PF filing for all entities in scope, even those not administered by Gen II

Integrated solution for data identification, aggregation, calculation, verification, and storage

Access to a complete audit trail, storage, and reconciliation of Form PF data

Form PF filing is completed directly on the FINRA site, where clients can review and submit

The SEC’s response to the amendment of the Marketing Compliance Rule has reiterated that in any instance where Gross Performance is reported, including any case studies on a single investment, Net Performance must also be reported.

This recent, increased focus on transparency and the accuracy of promotional materials means that private equity firms must be more meticulous in their calculation and presentation of IRRs. They are obligated to provide all necessary disclosures for clients to understand how the figures have been calculated, including the key assumptions involved.

The Sensr® IRR calculation tool is essential for GPs to meet the demanding reporting requirements of the SEC and their LPs. By automating the process, Sensr® ensures accuracy, speed, flexibility, and informed decision-making.

With the capacity to quickly calculate Gross and Net IRR, your team can explore multiple scenarios and assumptions, while saving valuable time and energy. Sensr® empowers your team to make well-informed and precise decisions that lead to better investment results.

Sensr® IRR Calculator Capabilities

Transparent & Accurate IRR Calculations

Allows for the transparent calculation of IRR, with detailed disclosure of the underlying cash flows and key assumptions. This can help maintain compliance with the SEC's new rules around the presentation of IRRs.

Standardized Methodology

Uses a standardized methodology for calculating IRR, ensuring that IRR calculations across different investments are consistent and can be compared on an equal footing. This helps satisfy the SEC's requirements for consistency in IRR calculations.

Real-Time Access & Visibility

Provides GPs and LPs with real-time access to fund performance data, which can enhance transparency and investor relations. It also gives GPs a better ability to manage their portfolios, and it provides LPs with greater insight into their investments.

Advanced Analytics & Reporting

Provides advanced analytics capabilities, including portfolio analysis, attribution analysis, and scenario analysis. This can help GPs make better investment decisions and help LPs understand the potential impact of different scenarios on their investments.

Compliance & Governance

Aid in compliance management and governance by helping funds maintain and demonstrate compliance with the SEC's new Marketing Compliance Rule.

Whether an emerging manager or an established firm, the idea of switching to a new fund administrator can be daunting. Fears that changing your service provider will consume valuable time and resources or result in costly or disruptive mistakes often distract from the long-term benefits.

However, the need for a new fund administrator often indicates that your business is growing and evolving so making the switch will ultimately benefit your firm.

Choosing the right third-party administrator is vital for your business’s performance as well as reputation. Your fund administrator manages financial reporting, investor statements, and serves as a strategic partner for long-term growth. Further, they coordinate services from other providers such as lawyers, banks, and auditors to ensure compliance with deadlines and optimize operational efficiency.

Advanced technology makes for a smooth transition

While considering changing fund administrators, a range of concerns may arise, such as data security, integrity, and continuity. However, with the help of advanced technology and streamlined processes, switching fund administrators can be a seamless and hassle-free experience.

Partnering with a service provider that utilizes automation and straight-through processes ensures historical fund data, financial records, investor information, and performance data are accurately transferred without disruptions or discrepancies. This reduces manual intervention and human errors while enabling your team to track and verify data accuracy during the transition.

Hesitation results in inefficiency and diminished investor confidence

If you’re considering a new fund administrator, don’t let the idea of a difficult transition stop you. Delaying the switch to a new service provider may result in prolonged inefficiency and loss of investor confidence. As long as you choose a provider with modern, scalable technology and an experienced team, switching service providers can be a smooth and straightforward process.

The Securities and Exchange Commission (SEC) has adopted new rules and amendments (“Private Fund Adviser Rules” or “Rules”) under the Investment Advisers Act of 1940 (“Advisers Act”), affecting private funds and their advisers. The Rules aim to improve transparency and comparability, whilst also restricting or prohibiting certain activities deemed detrimental to investors and the public interest. The Rules will require many advisers to reevaluate their practices and significantly modify or enhance their operational procedures and disclosures, as well as address practices allowing preferential treatment that are deemed contrary to investors’ interests. The Rules impose additional responsibilities and limitations, thereby increasing the administrative burden and costs for both registered and exempt private fund advisers.  The Rules are categorized as follows:

1. Quarterly Statement Rule
2. Private Fund Audit Rule
3. Adviser-Led Secondaries Rule
4. Restricted Activities Rule
5. Preferential Treatment Rule
6. The Compliance Rule

The Quarterly Statement Rule, the Private Fund Audit Rule, and the Adviser-Led Secondaries Rule are applicable to Registered Private Fund Advisers.  The Restricted Activities Rule and the Preferential Treatment Rule are applicable to all Private Fund Advisers.  The Compliance Rule Amendments are applicable to all Registered Advisers. Additionally, the Rules introduced amendments to the recordkeeping requirements for Registered Private Fund Advisers in respect of the above.

The Rules will be effective 60 days after their publication in the Federal Register. There is a 12-month transition phase for advisers with private fund assets under management (“AUM”) of $1.5 billion or more and 18 months for advisers with private fund AUM below $1.5 billion, which does not apply to the Quarterly Statement Rule and the Private Fund Audit Rule as they will have an 18-month transition period irrespective of their AUM.

The Rules represent a pivotal shift in the private fund industry. To adapt to these changes and build investor confidence, it is crucial for private fund advisers to proactively address compliance. It is advisable to engage experts, including accountants, legal professionals, and third-party administrators, and monitor updates to facilitate the adoption of these new Rules.

If you have questions, contact your Gen II Client Service Manager or compliance@gen2fund.com.

Below is a summary of the new Private Fund Adviser Rules and recommended courses of action. For full details, see the SEC’s Fact Sheet, Final Rule, and Press Release.

The SEC’s New Private Fund Adviser Rule Amendments

Quarterly Statement Rule

• Applicable to RIAs Only
• 18-Month Transition Period

Rule:

Quarterly statements are to be distributed to private fund investors containing detailed information on:

• Fund fees and expenses;
• Compensation paid to the RIA and its affiliates by the fund and the portfolio investments, and any related fee offsets; and
• Standardized fund performance information (including year-to-date, annual, and since-inception returns up to ten years for liquid funds i.e., funds permitting investor redemptions. Illiquid funds to report performance with and without the impact of fund-level subscription facilities).

Statements must be delivered within 45 days (Q1-Q3) or 90 days (Q4) of quarter-end. For fund-of-funds, the deadlines are 75 days and 120 days, respectively.

Recommendation:

Perform a gap analysis with respect to the performance calculation and disclosure requirements of the Rules.

Private Fund Audit Rule

• Applicable to RIAs Only
• 18-Month Transition Period

Rule:

Each fund must be subject to an annual financial statement audit in compliance with the audit exception in Rule 206(4)-2 of the Advisers Act.  Audited financial statements must be provided to investors within 120 days of the fund’s year-end (180 days for fund-of-funds).  These financial statements must be prepared under US GAAP and audited by a PCAOB-registered and -inspected firm.

Recommendation:

Coordinate with your auditors and Gen II to ensure that the Rule requirements are met. If your fund was not previously audited, the initial audit will require greater effort since the auditor will need to gain comfort on the beginning-of-the-year balances.

Adviser-led Secondaries Rule

• Applicable to RIAs Only
• 12-Month Transition Period for Large Advisers (> =$1.5B AUM)
• 18-Month Transition Period for Small Advisers (< $1.5B AUM)

Rule:

Funds undertaking an adviser-led secondaries transaction are required to (i) obtain a fairness opinion or a valuation opinion and (ii) disclose any material business relationships between the adviser and the opinion provider during the previous two years.

Recommendation:

Prior to undertaking a secondaries transaction, identify a third-party service provider meeting the Rule requirements to provide the fairness or valuation opinion.

Restricted Activities Rule

• Applicable to All Private Fund Advisers
• 12-Month Transition Period for Large Advisers (> =$1.5B AUM)
• 18-Month Transition Period for Small Advisers (< 1.5B AUM)

Rule:

Restricts private fund advisers from undertaking certain activities unless they are disclosed, either before or after the event as prescribed and, where required, investor consent is obtained.  “Consent” is defined as the approval by a majority in the interest of investors unaffiliated with the adviser. Limited Partner Advisory Committee approval is not sufficient.

Permitted Activities with Disclosure:

• Charging or allocating to the fund the adviser’s regulatory or compliance fees/expenses (Disclose within 45 days of the fiscal quarter end).
• Reduction of the GP’s clawback for taxes (Disclose pre-tax and post-tax clawback amounts within 45 days of the fiscal quarter end).
• Non-pro rata allocations across different funds of investment-related expenses pertaining to the same investment (Disclose before the fact, with an explanation as to why the allocation is equitable).

Permitted Activities with Disclosure and Consent:

• Charging or allocating to the fund fees/expenses relating to government or regulatory investigations of the adviser. Irrespective of disclosure or consent, such charge or allocation is prohibited if the adviser is sanctioned for violations of the Advisers Act or the Rules thereunder (“sanctioned matters”).
• Adviser borrowing from a fund.

“Legacy Status” applies to all existing agreements in place as of the Compliance Date other than those pertaining to “sanctioned matters”, which are not grandfathered.

Recommendation:

Review governing document provisions for prohibited activities and amend as appropriate.

Review and address the allocation and disclosures of adviser-related regulatory or compliance fees and expenses, and the requirement for obtaining and recording investor’s consent, where applicable.

Review and address the methodology and disclosures related to the non-pro-rata allocation of fees and expenses associated with portfolio investments. Review and address GP clawback pre- and post-tax disclosures.

Preferential Treatment Rule

• Applicable to All Private Fund Advisers
• 12-Month Transition Period for Large Advisers (> =$1.5B AUM)
• 18-Month Transition Period for Small Advisers (< 1.5B AUM)

Rule:

Prohibits the provision of preferential redemption terms or additional information on holdings and exposures to certain investors unless: (i) those terms or information rights are offered to all the fund’s investors (including investors in funds with similar portfolios) or (ii) preferential redemption rights are required by law. Other preferential terms must be disclosed to current and prospective investors.  “Legacy Status” applies to all existing “legacy” preferential redemption and information rights agreements in place as of the Compliance Date.  Legacy preferential redemption or information rights are not required to be offered to other investors. However, legacy status does not negate the requirement to notify all investors of other legacy preferential material economic terms.

Recommendation:

Review all existing side letters and investor agreements for preferential and unique terms. Develop disclosures to address the Rules for any side letters and agreements entered into after the effective Compliance Date.

Compliance Rule Amendments

• Applicable to RIAs Only
• 60-Day Transition Period

Rule:

Amends the existing Compliance Rule to require all RIAs, including those that do not advise private funds, to document in writing the required annual review of their compliance policies and procedures.

Recommendation:

Review procedures to verify that the annual compliance review is performed and documented in accordance with the Rules.