Following up on its announcement in 2016, the Bureau of Economic Analysis, Department of Commerce (BEA) has made important changes to its surveys of direct investment (voting interests of 10 percent or more) that will affect many private funds and will be implemented beginning with direct investment surveys conducted in 2017.1 Further information on these changes, including frequently asked questions and tools to help determine reporting obligations, is available on the BEA's website. 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 these changes, the BEA expects that many 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 to the U.S. Treasury Department's Treasury International Capital (TIC) system, which applies to hedge fund groups with total cross-border investments exceeding the much higher TIC reporting thresholds. However, many private equity funds will remain subject to BEA direct investment reporting. Under these changes, any 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."2

The BEA has indicated that it will notify entities that are potentially affected by these changes in 2017 and have previously filed annual and/or quarterly surveys of direct investment abroad (BE-11 and BE-577) or foreign direct investment in the United States (BE-15 and BE-605). A U.S. private fund that is acquired or established by a foreign entity after January 1, 2017 and meets the exemption criteria will not be required to file a Form BE-13 Claim for Exemption if the BEA does not contact it. Further information is available on the BEA's website.