Fund compliance and regulatory for ABF

ABF funds face compliance requirements at multiple levels: fund document compliance, regulatory filing obligations, and deal-level requirements for positions with ongoing reporting obligations. This page covers investment restriction monitoring, side letter compliance, regulatory reporting, and deal-level compliance considerations.

Fund-level compliance

Your fund documents create compliance obligations. Track them systematically:

Investment restrictions

Most ABF funds have restrictions on:

Single position concentration. Typically 10-20% of NAV or committed capital. The larger the position, the tighter the limit.

Asset class concentration. May limit exposure to single asset type (e.g., no more than 40% in consumer loans).

Leverage. Both fund-level borrowing and look-through leverage through leveraged positions.

Liquidity minimums. Cash or highly liquid holdings to meet redemption requests or capital calls.

Geographic restrictions. Maximum exposure to single jurisdiction or minimum US exposure.

Vintage concentration. Maximum exposure to loans originated in single year.

Restriction monitoring

Build a compliance dashboard that calculates restriction usage in real-time. Key features:

Pre-trade check. Before executing a trade, calculate how the position would affect all applicable restrictions. Block trades that would cause breaches.

Daily monitoring. Even without trading, position values change. Monitor restriction usage daily against current NAV.

Threshold alerts. Set alerts at 80% and 90% of limits. Catch approaching breaches before they happen.

Cure period tracking. Some restrictions allow cure periods for market-driven breaches. Track cure deadlines and required actions.

Review compliance dashboard weekly with portfolio management and compliance.

Side letter compliance

Institutional LPs negotiate side letters with custom terms. Track:

MFN (Most Favored Nation) rights. If LP A has MFN rights, they’re entitled to any better terms you give LP B. Maintain a master side letter matrix showing all provisions.

Reduced fees or carry. Track LP-specific economics. Ensure correct fee calculation for each LP.

Co-investment rights. Some LPs have rights to co-invest in deals above certain thresholds. Track eligibility and offering requirements.

Custom reporting requirements. LPs may require specific data, formats, or timing beyond standard reporting.

Exclusion rights. ESG-focused LPs may exclude certain asset types or originators. Track exclusions and ensure compliance.

Side letter matrix

Maintain a comprehensive side letter matrix:

LP Name	MFN	Fee Discount	Co-Invest Right	Reporting	Exclusions
LP A	Yes	None	>$5M	Standard	Tobacco
LP B	No	10bps	None	ESG report	Firearms, gambling
LP C	Yes	15bps	>$3M	Monthly NAV	None

Update the matrix when new LPs join or terms are amended.

Conflict of interest management

ABF strategies often create potential conflicts:

Deal allocation. Allocating deals between funds managed by same GP. Document allocation policy and apply consistently.

Co-investment. Investment between fund and GP or affiliated parties. Ensure arm’s length terms and proper disclosure.

Cross-transactions. Transactions between managed accounts and funds. May require independent pricing and/or investor consent.

Originator relationships. Where GP has economic interest in originator. Disclose conflicts and document mitigation.

Document conflict policies in your compliance manual and maintain records of how conflicts were handled. When in doubt, disclose to investors.

Regulatory reporting

Form PF

Required for private funds with >$150M AUM. Filing requirements:

Large private fund advisers ($1.5B+ AUM). Quarterly filing within 60 days of quarter end. More detailed questions on portfolio composition, leverage, and counterparty exposure.

Smaller private fund advisers. Annual filing within 120 days of fiscal year end.

Key ABF-specific questions:

Asset class breakdowns (Section 2, Question 25)
Leverage and counterparty exposure (Section 2, Questions 26-33)
Liquidity profile (Section 2, Question 34)

Form ADV

Annual filing required for registered investment advisers. Update promptly for material changes.

Part 1. Firm information, AUM, business activities. File electronically via IARD.

Part 2A (Brochure). Narrative disclosure of investment strategy, fees, conflicts, disciplinary history. Deliver to clients.

Part 2B (Brochure Supplement). Information on key personnel. Deliver to clients.

Key ABF items: Accurate AUM calculation, strategy descriptions, conflicts disclosure for originator relationships.

Blue sky filings

State notice filings required in states where you have investors or conduct business.

3(c)(1) funds. File notice in each state with resident investors.

3(c)(7) funds. Exempt from most state registration but may still require notice filings.

Track filing dates and renewals in compliance calendar. Many states require annual renewal.

FATCA/CRS

Foreign investor tax information reporting:

FATCA (Foreign Account Tax Compliance Act). US reporting of accounts held by foreign persons. Ensure proper W-8 documentation at onboarding.

CRS (Common Reporting Standard). OECD framework for automatic exchange of tax information. Applies to funds with non-US investors.

Self-certification. Obtain tax residency self-certification from all investors at onboarding.

Annual reporting. Report foreign investor information to IRS (FATCA) and relevant jurisdictions (CRS).

Deal-level compliance

If your fund invests in positions with ongoing regulatory requirements:

Regulation AB (for registered ABS)

Issuer reporting requirements including:

Monthly investor reports with specified data
Annual servicer compliance statements
Significant event notifications (8-K filings)
Static pool data disclosures

You’re not the issuer, but you need to monitor issuer compliance and track implications for your position. Non-compliant issuers may face SEC action affecting your position’s value.

Rule 17g-5

Rating agency information websites where deal documents and performance data are posted:

Issuer must maintain website with deal documents
Password access provided to NRSROs (nationally recognized statistical rating organizations)
Performance data posted monthly

Monitor these websites for:

Updated performance data
Rating agency reports and actions
Deal document amendments
Material notices

Risk retention

Track compliance with credit risk retention rules where applicable:

US risk retention (Dodd-Frank). Sponsors of securitizations generally must retain 5% of credit risk. Retention may be vertical (slice of all tranches), horizontal (first-loss), or L-shaped (combination).

EU risk retention. Originators, sponsors, or original lenders must retain 5% material net economic interest. Applies to EU-regulated investors.

Verification. Confirm sponsor is complying with retention requirement. Maintain documentation of sponsor’s retention commitment.

Rule 144A compliance

For positions acquired under Rule 144A:

Positions are restricted securities
Resale only to QIBs (qualified institutional buyers)
Maintain legend and transfer restrictions
Track Rule 144 holding period if planning public resale

Compliance infrastructure

Compliance calendar

Build and maintain a calendar tracking:

Regulatory filing deadlines. Form PF, Form ADV, blue sky renewals, FATCA/CRS reporting.

Fund document deadlines. Capital calls, distributions, investor reporting, GP clawback calculations.

Investor agreement deadlines. Side letter provisions with specific timing requirements.

Policy review dates. Annual update of compliance manual, valuation policy, business continuity plan.

Review calendar weekly. Assign owners to each item with backup coverage.

Compliance testing

Transaction testing. Sample test trades for compliance with investment restrictions, allocation policies, and best execution.

Portfolio testing. Periodic review of portfolio composition against fund document requirements.

Policy adherence. Test that documented policies are being followed (valuation committee meeting, watch list reviews, etc.).

Document review. Annual review of compliance manual, code of ethics, and other policies.

Regulatory change management

Designate someone to monitor regulatory developments. Key sources:

SEC releases, no-action letters, and enforcement actions
FINRA notices and regulatory guidance
CFTC (if any derivatives exposure)
State regulators (where applicable)
Industry associations (LSTA, SFIG, SIFMA)

Change management process

Identify. Flag relevant regulatory changes from monitoring sources.
Assess. Determine impact on fund operations, policies, and positions.
Plan. Develop implementation plan for required changes.
Implement. Update policies, systems, and procedures.
Document. Maintain record of regulatory changes and responses.

Review regulatory developments quarterly and update policies as needed.

Annual compliance review

Conduct annual compliance review covering:

All regulatory filings made during year
Any compliance incidents or breaches
Results of compliance testing
Regulatory developments and responses
Staffing and resource adequacy

Present findings to senior management and document remediation plans for any gaps.

Common compliance issues

Investment restriction breaches

Passive breaches. Market movements cause restriction breach without trading. Typically cure periods apply.

Active breaches. Trade causes breach. More serious. Review pre-trade compliance controls.

Documentation. Document all breaches, whether passive or active. Record cause, impact, cure action, and prevention measures.

Side letter failures

Missed provisions. Forgot to apply LP-specific terms. Review side letter matrix before any LP-specific action.

Calculation errors. Fee discount applied incorrectly. Implement systematic fee calculation with LP-level parameters.

Disclosure gaps. Failed to provide required reporting. Track all LP-specific requirements in investor relations system.

Regulatory filing errors

Missed deadlines. Calendar management failure. Implement redundant reminder systems with backup owners.

Inaccurate information. Data errors in filings. Implement review and approval process before filing.

Amendment requirements. Failed to file material change amendments. Monitor for triggering events.

Key takeaways

Systematize restriction monitoring. Manual tracking doesn’t scale. Build automated dashboards and alerts.
Maintain side letter discipline. The side letter matrix is a critical compliance document. Keep it current.
Know your regulatory calendar. Missed filings are hard to fix and create LP concern.
Monitor regulatory changes. The regulatory environment evolves. Stay current or get surprised.
Document everything. When in doubt, document. Good records protect against future questions.

Cross-references

Operations team structure for compliance function staffing
Fund investor reporting for LP reporting requirements
NAIC filing and insurance investor requirements for insurance company specific requirements