Every five years, the Department of the Treasury conducts a benchmark survey on the ownership of foreign securities by US residents. This data is collected on Form SHC and is next due on March 3, 2017, covering relevant holdings as of December 31, 2016. This report is used by the US government in computing the US balance of payments accounts and the US international investment position, as well as formulating international economic and financial policies. The report is also part of the Coordinated Portfolio Investment Survey (CPIS), which is coordinated by the International Monetary Fund in an effort to improve statistics on foreign securities held by major investing countries.
Sponsors of private equity funds, hedge funds and other similarly pooled, commingled funds organized in the United States, may be required to file Form SHC if those funds have holdings of reportable foreign securities (calculated together with any such holdings held by a sponsor for its own account) with an aggregate fair value of $200 million or more. The top US-resident parent entity in each organization is responsible for ensuring that its report covers all US-resident parts of the organization (including all US-resident branches, offices, and subsidiaries). Any officer, director, employee or agent who knowingly participates in the willful failure to submit any required information can be punished by a fine and/or imprisonment. US-resident custodians may also have reporting obligations with respect to reportable foreign securities they hold in safekeeping for other organizations (and in some cases a portion of a private fund's reporting obligations may be shifted to that custodian) and/or invest in for their own account. Survey results will be made available publicly on an aggregated basis, without identifying the US persons reporting the information or the foreign securities held by such persons.
Reportable foreign securities include foreign equities (which for this purpose includes all securities issued by foreign-established funds, regardless of type), short-term debt securities, long-term debt securities and asset-backed securities. A foreign security for this purpose will generally be determined by reference to the issuer's country of organization, regardless of where the security is traded or issued or the currency in which it is denominated. For example, a US feeder's equity ownership of a Cayman master fund would be reportable as a foreign security held by that feeder, even if all of that master fund's holdings were securities of US issuers (e.g., Treasurys). As another example, a Cayman fund would not have reporting obligations on Form SHC because it is not US-resident, even if it had a US-based manager and all of its investors were US tax-exempt investors.
Form SHC collects information on US-resident holdings of applicable foreign portfolio securities, and excludes all "direct investments." A direct investment relationship exists when a US resident owns, directly or indirectly, 10 percent or more of the voting equity securities of an incorporated foreign business (or an equivalent interest in an unincorporated foreign business or branch). Generally, general partner ownership interests are considered direct investments, while limited partner interests are considered reportable investments (unless they carry such voting rights, absent circumstances that nevertheless support their treatment as direct investments).
Form SHC and related filing instructions are available here.
If you would like to learn more, please contact David Goldstein or Wesley G. Nissen, or your DLA Piper relationship partner on our Investment Fund team or Financial Services team.
 Custodians are all organizations that hold securities in safekeeping for other organizations.