Is a hedge fund a qualifying plan asset?

[Guest CharlieLaur]

If a small plan invests in a hedge fund, would it be considered to be a qualifying plan asset for purposes of the small plan audit exemption? For example, I have a client who has invested in the Gabelli Associates Fund II LP.

Does the answer depend on what type of entity holds the hedge fund? For example, if it is held by a broker-dealer, would that make a difference?

Based on what I have seen so far, it looks like we may be stuck with treating it as non-qualifying but I was wondering if anyone else has had any experience with this issue.

Thanks!

[Ron Snyder]

Hedge funds come in various shapes and sizes. Many are registered investment companies and should be reported as such for all purposes. Those would be considered to be qualifying plan assets ("shares issued by an investment company registered under the Investment Company Act of 1940") . Along with "[a]ny assets", a hedge fund "held by * * * [a] bank or similar financial institution as defined in section 2550.408b-4©" is also a qualifying plan asset. That is because the bank or similar financial institution is already subject to the requirement that they be bonded. Therefore, a separate bond of the trustee of the plan is not required for such asset.

Funds held by a broker-dealer are not exempt, because the relationship is not a trust or escrow account with the b-d acting as the fiduciary.

The Gabelli Fund you mention is an investment company.

[Below Ground]

Is there a way to easily tell if the hedge fund is one that would be deemed to be a mutual fund for Schedule H reporting. I have a plan that has monies in "AIPABSRT" and "HATTERAS" under a brokerage account of a "major house". I am unsure on where to list this investment on Schedule H. Help!