The Bureau of Economic Analysis (BEA), in collaboration with the U.S. Department of the Treasury (Treasury Department) and the Federal Reserve Bank of New York, has proposed changes to certain cross-border investments that are reportable in the BEA’s surveys and in the Treasury Department’s Treasury International Capital (TIC) reports.

Under the existing framework, cross-border investments that constitute more than ten percent of an issuer’s voting interests are characterized as “direct investments” and are reportable on the BEA surveys, while investments below the ten percent threshold are characterized as “portfolio investments” and are instead reportable on TIC reports. The proposed changes would treat cross-border investments in certain private funds as portfolio investments (and thus reportable on TIC reports), even where the investor owns more than ten percent of the private fund’s voting securities.1

The proposed changes would apply in two reporting scenarios: (1) where a foreign investor holds more than ten percent of the voting securities of a U.S. private fund; and (2) where a U.S. investor holds more than ten percent of the voting securities of a foreign private fund. Notably, the proposed changes will not impact situations in which a U.S. or foreign private fund holds more than ten percent of the voting securities of an operating company (defined in the materials provided by the BEA as a business enterprise that is not a private fund or a holding company). Based on the BEA surveys’ consolidation rules, which require consolidation of limited partnerships with their general partners, certain U.S. investment managers to private funds may continue to be required to report on BEA surveys when their U.S. private fund clients, in the aggregate, hold more than ten percent of the voting securities of a foreign operating company.

If adopted, the proposed changes could reduce the reporting burden that certain U.S. private funds face, because the relevant TIC reports (TIC Forms SHC/SHCA, SHL/SHLA, SLT and S) generally require less extensive and less granular reporting than the corresponding BEA surveys (BE-10, BE-11, BE-577, BE-12, BE-15, BE-605 and BE-13).

The BEA intends to seek public comment on the proposed changes during summer 2016 and, if adopted, will implement the rule changes beginning with the surveys conducted in 2017. If the changes are adopted, which appears likely, reporters would need to review their policies and procedures regarding BEA surveys and TIC reports in advance of 2017 reporting deadlines.