The American Stock Exchange has proposed listing standards for Securities and Exchange Commission-registered closed-end funds that substantially invest their assets in underlying hedge funds in an effort to provide alternatives to listing markets overseas as well as traditional OTC markets. In addition to existing Closed-End Investment Company listing standards, a Closed-End Investment Company investing in a Fund of Hedge Fund would be:
- Required to provide for the calculation and public dissemination of its net asset value on at least a weekly basis;
- Permitted to invest only in underlying Hedge Funds that provide for weekly valuation reports prepared by an unaffiliated, independent third party; and
- Required to contractually agree to publicly disseminate any material information that an underlying Hedge Fund makes available to its investors.
- In addition, each underlying Hedge Fund and the Closed-End Fund or the registered investment adviser on behalf of the Closed-End Fund would also be required to enter into a contractual relationship whereby the underlying Hedge Fund agrees to provide the weekly valuation reports to the Closed-End Fund.
The underlying hedge funds would be investment companies under the Investment Company Act but for the exceptions provided by Section 3(c)(1) or Section 3(c)(7).