Financial Services

Grassi & Co. offers accounting and business consulting services for the Financial Services industry throughout the New York Metro area, including NYC, New Jersey, Long Island, Connecticut, and Pennsylvania. Read our Financial Services blog posts to learn more about Financial Services accounting in New York.

Tax Sins Hedge Fund Managers Should Avoid

In the competitive world of investing, it could be quite tough to launch your fund, seek capital and then deploy that capital.  But what about keeping it going so that you can reap the rewards?  Although many things happen that are beyond one’s control, any of these, by themselves, are enough to cause investors to flee.  They could include a host of things including underperformance to a benchmark, losses over time, volatility, lost faith in management, or even a sudden loss of interest in a certain type of investment style or sector. When any of these occur, coupled with what I would like to call, “the tax sins hedge fund managers should avoid”, the tipping point of losing an investor might be approaching quicker than you think. These sins are as follows: 1.Triggering taxable income at high tax rates—in fact, several funds trigger ordinary taxed gains, including both short term capital gains and ordinary dividends.  Unless the mandate of the fund is short term trading, and the investor is fully of aware of this, then high taxed gains are a disservice to investors. Note: Investing in passive indices for the long term will trigger low tax rate income, such as long term capital gains and qualified dividends. 2.Incurring virtually useless tax deductions—when investors start to lose money, they start to look under rocks for places to save money.  They then focus on those management fees collected by fund managers.  These fees are reported as “portfolio deductions” on the K1’s.  On one’s personal tax return, these deductions appear as miscellaneous itemized deductions on Schedule A.  (It gets bad from here...

Compliance Know How for Emerging Managers

The emerging manager has many hurdles to jump in order to bring his fund’s strategy to investors. The setup process requires resources that will include a competent attorney, who is experienced in the alternative investment industry; bankers, clearing agents, and marketers—the list can be overwhelming. All of that, and it must be cost efficient. The fund manager must clearly define what needs  to be accomplished, what plans are needed in order to follow the course to success and bring the fund to potential investors—all while meeting the requirements of the SEC and other regulatory agencies. The key regulations relative to the fund’s investor-base are SEC registration, (Dodd Frank); Form PF; FATCA and AIMFD. And it doesn’t end there! It’s also a good idea to go through a mock audit should the SEC come knocking.  Managers should have a full bodied compliance handbook that details processes and someone who can hold the reins of those processes.  These requirements can become a costly journey for any money manager, but there are ways to contain it. First, contact a provider who is willing to listen and assess your plans and further, if you’re lucky, direct you to the providers who are aligned with your vision-who will ultimately become an extension of your team. The coordination of this is not simple; managers typically spend most of their time running to meeting after meeting trying to obtain the right provider at a cost efficient fee schedule. And fees can differ widely, especially costs for experienced legal counsel, technology and other outsourced services. For a new manager, outsourced CFO and compliance and regulatory services can...

Grassi Fund Administration Services, Inc. (GFAS) Launches Compliance and Regulatory Services

New York, NY – September 15, 2016 – Grassi Fund Administration Services is pleased to announce our new Compliance and Regulatory Services division provided through Grassi Fund Administration Services, Inc., (GFAS). Grassi understands the labyrinth of requirements that fund managers must comply with, but addressing the current environment can mean straining the resources of the fund. At GFAS, our team of professionals is experienced in regulatory and compliance requirements, and understands the need for fulfilling essential requirements with customizable solutions. Grassi Fund Administration Services, Inc. provides comprehensive Compliance and Regulatory Services to enable its clients to establish and maintain rigorous compliance programs, risk assessments, mock audits and anti-money laundering and KYC services. Through a hands-on, consultative approach to client needs, GFAS is able to identify the stringent yet ever- changing, and sometimes obscure, regulatory requirements. Combining experienced professionals with a robust technology platform, GFAS is able to produce customized solutions to carve through a multitude of requirements and comply with a governing landscape that can be very overwhelming. Using a collaborative approach to client’s specific requirements, GFAS can serve as a complete outsourced compliance resource. We provide regulatory services including registration services; Form ADV (Parts 1&2); Form PF; FATCA; Schedule 13F and other regulatory filings; regulatory reviews and governance; disclose requisite state and federal registration changes; and annual reviews. The compliance program includes consulting to help analyze relevant requirements; development of a tailored compliance program and a customized compliance manual; ongoing monitoring and surveillance; and the creation and test of business continuity and disaster recovery plans. The risk assessment portion includes the examination of core compliance needs and key...

What You Need to Know About the U.S. Hedge Fund Industry

Starting a hedge fund in the United States may sound like an easy way to substantial wealth, but the process will prove to be challenging. The emerging manager must have an entrepreneurial mindset and think like a business owner, not solely as a portfolio manager. Initially, a signifi cant amount of time will be spent managing overhead, human resources and marketing (capital raising); as well as IT and network infrastructure. Federal and state securities laws will present additional challenges to an emerging manager not prepared for the regulatory process. Managers must be aware that hedge funds and their advisors are governed by the Securities Act of 1933 (the Securities Act), the Securities Exchange Act of 1934 (the Exchange Act), the Investment Advisers Act of 1940 and the Investment Company Act of 1940 (the Investment Company Act). CAPITAL RAISING Raising capital is highly competitive and managers looking to attract sophisticated investors must be able to prove that their strategy has historically been successful under differing market conditions and require the emerging manager has an appropriate mix of experience and business savvy. Family and friends typically tend to be the first choice for capital for emerging managers and, due to their relationship with the manager, may not require an extensive proven track record. Once a track record is established (spanning multiple years) capital raising activities begin to focus on fund-of-funds, family offices and high-net-worth individuals. Introductions to these investors can be facilitated through capital introduction groups. Managers may also obtain early stage capital from seed investors, who may provide support services, in exchange for a share of management and performance fees and possibly an ownership stake in both the management company and general partner entity. Ultimately, managers will want to attract institutional investors. Managers interested in obtaining institutional assets must, in the early stages of the...

Grassi & Co.’s Monthly Investment Report — September 2015

Global stocks dropped sharply in August, triggered by China’s devaluation of its cur-rency in the face of slowing economic growth, which set off alarms about the pace of global growth in general. That led to a virtual freefall in Chinese stocks, which spread to emerging markets as well as to the U.S. and Europe. At the same time, investors are worried that the Federal Reserve’s first interest rate increase since 2006 may only make things worse. As of September 17th, the Fed decided not to raise rates this month due to concerns about the fragile economy and low U.S. inflation rate. Yellen did say rates could be raised at the October meeting. For more information on the state of the market leading up to September 17th’s meeting and the Fed’s decision, click the link below: Grassi & Co.’s Monthly Investment Report – September...

Possible Tax Avoidance, or Evasion, Transactions of Interest to the IRS

On July 8, 2015, the IRS issued Notice 2015-47 and Notice 2015-48 which identified newly listed transactions and transactions of interest.   The identified structured financial transactions involve basket option contracts (possible tax avoidance and listed transactions), and basket contracts (transactions of interest having the potential for tax avoidance or evasion).  Both categories of transactions are reportable on Form 8886. Here’s How it Works: In a basket option contract, a taxpayer (“T”), typically a hedge fund or a high net worth individual, enters into a contract that is designated as an option with a counterparty (“C”)— typically a bank. The contract provides that T will receive a return based on the performance of a notional basket of referenced actively-traded personal property (a “reference basket”).  T, or its designee, will determine the assets that make up the reference basket or specify a trading algorithm that determines the assets.  The contract also gives T the right to change the assets in the reference basket while the contract is deemed to remain open.  C typically acquires the assets in the reference basket and, although having the right to reject changes, will acquire or dispose of assets when T, its designee or the algorithm provides for those changes.  Upon settlement of the basket option contract, T’s payment is based on the performance of the reference basket that includes net short-term gains, dividends, and other income less expenses.  The stated term of the basket option contract is more than one year.  T takes the position that the option does not create beneficial ownership of the assets in the reference basket and, therefore, no income is...