Russian investments in the United States: Hardening the target
“private investment funds” or “alternative investments” refer to arrangements in which an investment vehicle is open only to “accredited investors,” generally wealthy individuals or institutions such as pension funds. Such structures include private equity firms, venture capital firms, and hedge funds. The typical arrangement would consistent of multiple investment funds managed by one “adviser.” The advising management firm typically registers with the Securities and Exchange Commission and reports the names of the funds under its management on Form ADV. The minimum figure of $100 million in assets under management triggers registration. Firms managing less than $100 million are typically registered at the state level.
2. To paraphrase the (apocryphal) old Everett Dirksen saw, “$12.5 trillion here, $12.5 trillion there, and pretty soon you’re talking real money.”
3. American investments made by foreign firms, including sovereign wealth funds, are even more opaque. Most of the time, the U.S. government knows virtually nothing about them, or even that they exist at all. That is a related but distinct issue that the U.S. will also need to address.
4. Positions in publicly traded equities may be covered either by Form 13F or Schedules 13D or G, both of which the SEC includes in its searchable EDGAR database. Certain large trades are also covered by Form 13H. Advisers managing over $150 million in assets report certain aggregate information about the composition of its investments on the non-public Form PF. This information is intended to help assess systemic financial risk and does not require the disclosure of specific investment positions. An exception to these generally limited disclosure requirements is the detailed reporting required of large private liquidity fund advisers on Form N-MFP.
5. The Foreign Investment Risk Review Modernization Act of 2018 will, among other things, expand the scope of CFIUS to cover transactions for “investments in certain U.S. businesses that afford a foreign person access to material nonpublic technical information in the possession of the U.S. business, membership on the board of directors, or other decision-making rights, other than through voting of shares.” The extent to which private equity investments will constitute covered transactions will be determined in forthcoming regulations.
6. Failure to require private investment fund managers to maintain AML programs and file suspicious activity reports puts the United States in breach of the global standards set by the Financial Action Task Force. This was one of the key shortcomings highlighted by the task force in its 2016 evaluation of the United States.
Joshua Kirschenbaum is Senior Fellow, and Adam Kline is an intern, at the Alliance for Securing Democracy. The article, originally posted to the website of the German Marshall Fund of the United States, is published here courtesy of the GMFUS. The views expressed in GMF publications and commentary are the views of the author alone.
