The Bureau of Economic Analysis, Department of Commerce (BEA) conducts various surveys that currently require certain U.S. entities to report inbound or outbound investments comprising voting interests of 10 percent or more held across the U.S. border (direct investments), while the U.S. Treasury Department (Treasury Department) conducts Treasury International Capital (TIC) surveys that require certain U.S. entities to report certain other types of cross border investments (portfolio investments). The BEA recently announced on its website that it plans to implement, in cooperation with the Treasury Department, important changes to its direct investment surveys. These changes are intended to simplify reporting for private funds by recharacterizing certain direct investments in private funds as portfolio investments based on the nature of the private fund's investments. Under the proposed changes, the BEA expects that most hedge funds that have been subject to BEA direct investment reporting as a result of cross border voting interests will instead be subject to reporting in the TIC system if a hedge fund group's total cross border investments (both cross border voting investments of 10 percent or more and other cross border investments) exceed the much higher TIC reporting thresholds, however, many private equity funds will remain subject to BEA direct investment reporting. If these reporting changes are implemented as described by the BEA, effective with surveys conducted on or after January 1, 2017, cross border voting investments of 10 percent or more in, or by, private funds will only be subject to BEA reporting if such investments involve, directly or indirectly, a direct investment in an "operating company," which the BEA defines as "companies that are not other private funds or holding companies."1
The BEA has published a webinar and slides that describe the direct investment reporting changes it intends to propose, and it has prepared two flow charts to help private funds and their managers determine whether to report their cross border investments on BEA surveys or TIC surveys. These resources are available on the BEA website, here, under the headings "Webinar" and "Resources for Private Funds." The BEA intends to use these flow charts as the basis for future survey instructions and to develop an interactive online guidance tool that will help private fund reporters determine their reporting obligations. The BEA has requested feedback from the private fund industry on both these reporting changes and the flow charts, and is accepting comments and questions at email@example.com.