family offices - New York County Lawyers' Association Offices - 04.21.15.pdf · Information Regarding CLE Credits and Certification Family Offices: A to Z about Acting as Counsel

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FAMILY OFFICES: A TO

Z ABOUT ACTING AS LEGAL COUNSEL FOR A

FAMILY OFFICE Prepared in connection with a Continuing Legal Education course presented at New York County Lawyers Association, 14 Vesey Street, New York, NY

scheduled for April 21, 2015

Faculty:

Program Co-sponsor: NYCLA's Lawyers in Transition Committee

Moderator: E. David Smith, Smith & Associates

Faculty: Timothy P. Terry, Hartz Capital; Steve Thayer, Handler Thayer, LLP;

Richard C. Wilson, Family Offices Group

Program Chair: Yitzy Nissenbaum, Chair, NYCLA's Lawyers in Transition Committee

This course has been approved in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 2 Transitional and Non-Transitional credit hours: .5 Professional Practice/Law Practice Management;.1 Skills; .5 Ethics

This program has been approved by the Board of Continuing Legal education of the Supreme Court of New Jersey for 2 hours of total CLE credits. Of these, .5 qualify as hours of credit for ethics/professionalism, and 0 qualify as hours of credit toward certification in civil trial law, criminal law, workers compensation law and/or matrimonial law.

ACCREDITED PROVIDER STATUS: NYCLAs CLE Institute is currently certified as an Accredited Provider of continuing legal education in the States of New York and New Jersey.

Information Regarding CLE Credits and Certification

Family Offices: A to Z about Acting as Counsel for a Family Office April 21, 2015; 6:00 PM to 8:00 PM

The New York State CLE Board Regulations require all accredited CLE providers to provide documentation that CLE course attendees are, in fact, present during the course. Please review the following NYCLA rules for MCLE credit allocation and certificate distribution.

i. You must sign-in and note the time of arrival to receive your

course materials and receive MCLE credit. The time will be verified by the Program Assistant.

ii. You will receive your MCLE certificate as you exit the room at

the end of the course. The certificates will bear your name and will be arranged in alphabetical order on the tables directly outside the auditorium.

iii. If you arrive after the course has begun, you must sign-in and note the time of your arrival. The time will be verified by the Program Assistant. If it has been determined that you will still receive educational value by attending a portion of the program, you will receive a pro-rated CLE certificate.

iv. Please note: We can only certify MCLE credit for the actual time

you are in attendance. If you leave before the end of the course, you must sign-out and enter the time you are leaving. The time will be verified by the Program Assistant. Again, if it has been determined that you received educational value from attending a portion of the program, your CLE credits will be pro-rated and the certificate will be mailed to you within one week.

v. If you leave early and do not sign out, we will assume that you left at the midpoint of the course. If it has been determined that you received educational value from the portion of the program you attended, we will pro-rate the credits accordingly, unless you can provide verification of course completion. Your certificate will be mailed to you within one week.

Thank you for choosing NYCLA as your CLE provider!

New York County Lawyers Association

Continuing Legal Education Institute 14 Vesey Street, New York, N.Y. 10007 (212) 267-6646

Family Offices: A to Z about Acting as Legal Counsel for a Family Office Tuesday, April 21, 2015 6:00 PM to 8:00 PM

Program Co-sponsor: NYCLA's Lawyers in Transition Committee

Moderator: E. David Smith, Smith & Associates

Faculty: Timothy P. Terry, Hartz Capital; Steve Thayer, Handler Thayer, LLP; Richard C. Wilson, Family Offices Group

Program Chair: Yitzy Nissenbaum, Chair, NYCLA's Lawyers in Transition Committee

AGENDA

5:30 PM 6:00 PM Registration 6:00 PM 6:10 PM Introductions and Announcements. 6:10 PM 8:00 PM Presentation and Discussion

Anatomy of a Family Office

Family Family Advisory Board Investment Committee

Philanthropy Committee

Succession & Tax Planning

Board of Managers

Family Trustees

Independent Trustees

Institutional Trustees

Trust Protectors Family Trusts Dynasty Trusts

Family Office Management, LLC

Family Holding Company I, LLC

Family Holding Company II, LLC

Springing Member

Independent Manager

Service Providers Private Public

Banks Broker-Dealers

Registered Investments Advisors

Non-Registered Investment Advisors

Accountants Lawyers

Insurance Brokers Other Providers

Direct Investments

Equity Debt

Assets Other

Interests

Fund Investments

Registered Investment Funds

Mutual Funds

Exchange Traded Funds

Other Investment Funds

Exempt Investment Funds

Hedge Funds Private Equity Funds

Venture Capital Funds Fund of Funds

Family Offices: A to Z About Acting as a

Legal Counsel for a Family Office.

Program Agenda I. General Introduction to Acting as Legal Counsel

A. What is a family office and what do they accomplish for families?

B. What areas and level of issues do you need to be prepared to address?

II. Ethical Issues Associated with Representing a Family Office

A. Who is the Client? Where is the Client? Where are You? a. In General and in the cases of In-House Counsel and Outside Legal Counsel

B. Multiple Representation Conflict of Interest Waivers C. Unresolvable Conflicts/Required Withdrawals D. Attorney-Client Privilege who has it and protecting it

E. The rights and obligations of Trusts, Trustees and Beneficiaries in general and upon certain events

a. An example of the issues related to managing changing information in a Family

Office F. Ethical Issues in Family Office Business Decisions G. Conflicts in Family Offices and How to Minimize Them

III. Organization of a Family Office A. Basic Tax and Estate Planning Starting with a Good Core Estate Plan B. Advanced Tax & Estate Planning Uses of Revocable & Irrevocable Trusts for

Ownership of Family Assets (Living Trusts, Dynasty Trusts, Minor Trusts, Life Insurance Trusts, Asset Protection Trusts)

C. Family Office Structures

1. Management Company The Advisor/Manager of the Family Office

Structure a. Choice of Entity & Jurisdiction (Corporation/LLC) b. Tax Election (S-Corp., C-Corp, Partnership Status)

c. Ownership (Individuals or Trusts; Tends to be Static/Fixed) d. Governance & Control Issues (Shareholder Agreements)

e. Management f. Committee Structure (Engaging the Family/Key Advisors) g. Succession Planning

h. Mission/Vision/Business Plan i. Business Registration & Licensing j. Investment Advisor Regulation k. Broker Dealer Regulation 2. Asset Holding Companies The FLLC a. Choice of Entity (Jurisdiction/Type) - (DE LLC)

b. Tax Election (Tends to be Partnership Election) c. Ownership

(i) Static or Fixed Ownership (ii) Multiple Class Participating Percentage Model (iii) Multiple Series Participating Percentage Model (iv) Multiple Entity Structure (Use of Single Member LLCs)

d. Governance & Control Issues (i) Opt In/Opt Out (Hedge Fund Approach) (ii) Required Commitment Period (PE/VC Approach) (iii) Term (Defined or Never Ending)

e. Management (Removal Rights) f. Succession Planning (Controlled by Agreement or Trusts)

g. Investment Committee h. Investment Strategy 3. Charitable Giving Structures and Strategies a. Annual Gifting to Tax Exempt Organizations b. Donor Advised Funds c. Use of Complex Trusts d. Family Foundations (Operating/Non-Operating) IV. Tax, Regulatory, and Operational Issues Associated with a Family Office A. Income Tax Issues Managing the Flow of Income/Deductions

1. Benefit Planning (ERISA)

a. Control Group Rules b. Affiliates Service Group Rules c. Compliance & Reporting

2. Flow of Income to Members/Managers a. Allocation of Profits to Managers versus Management Fee Income

b. Allocation of Profits and Losses to Members Having Substantial Economic Effect

3. What are Ordinary & Necessary Business Deductions for a Family Office?

B. Estate Tax Issues Transferring Value to the Next Generation 1. Gifting of Membership Interests 2. Sale or Transfer of Membership Interests 3. Uses of Private Annuities

4. Sales to Intentional Defective Trusts 5. GRATS 6. Valuation and Discounts 7. Current Rules/Case Law Associated with All of the Above

C. Securities Registration & Compliance Issues

1. Investment Advisor Registration (State & Federal) Family Office Exemptions: The Dodd-Frank Act creates in its place a new exclusion from the Advisers Act in section 202(a)(11)(G) under which family offices, as defined by the Commission, are not investment advisers subject to the Advisers Act. (See: https://www.sec.gov/rules/final/2011/ia-3220.pdf)

2. Commodities Registration & Exemptions: The CFTC will not recommend that the Commission take an enforcement action for failure to register with the Commission as a CPO against a CPO that is a Family Office within the meaning and intent of 17 CFR 275.202(a)(11)(G)-1, as amended, provided that the CPO complies with the following set forth in their No Action letter. (See: CFTC No Action Letter at http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/12-37.pdf)

3. Broker Dealer Registration & Related Exemptions: Section 3(a)(4)(A) of the Act generally defines a "broker" broadly as any person engaged in the business of effecting transactions in securities for the account of others. See SEC Guide to Broker Dealer Registration at: http://www.sec.gov/divisions/marketreg/bdguide.htm

4. Investment Company Act Registration & Exemptions: See Section 3(c)(1) (100 Person Rule) and 3(c)(7) (Qualified Purchaser Fund)

D. Securities Reporting Issues

1. 13(f) Reporting ($100M Rule): An institutional investment manager that uses the U.S. mail (or other means or instrumentality of interstate commerce) in the course of its business, and exercises investment

http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/

discretion over $100 million or more in Section 13(f) securities (explained below) must report its holdings on Form 13F with the Securities and Exchange Commission (SEC). (See http://www.sec.gov/answers/form13f.htm)

2. 13D(G) Reporting (5% Rule): When a person or group of persons acquires beneficial ownership of more than 5% of a voting class of a companys equity securities registered under Section 12 of the Securities Exchange Act of 1934, they are required to file a Schedule 13D with the SEC. (Depending upon the facts and circumstances, the person or group of persons may be eligible to file the more abbreviated Schedule 13G in lieu of Schedule 13D.) See: http://www.sec.gov/answers/sched13.htm)

3. 13H Reporting (Large Trader Rule): Rule 13h-1 will require a large trader, defined as a person whose transactions in NMS securities equal or exceed 2 million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month, to identify itself to the Commission and make certain disclosures to the Commission on Form 13H. (See http://www.sec.gov/rules/final/2011/34-64976.pdf)

4. Insider Trading Reporting: When corporate insiders trade in their own securities, they must report their trades to the SEC. For more information about this type of insider trading and the reports insiders must file, See Forms 3, 4, 5 in Fast Answers databank that are linked at http://www.sec.gov/answers/insider.htm.

E. Managing/Running the Family Office

1. Control and Governance of Day to Day Affairs a. Control issues, voting vs. non-voting b. Involving the younger generations

2. Outsourcing versus Insourcing of Key Roles a. Chief Investment Officer/Use of Registered Investment Advisors b. Chief Executive Officer c. Chief Operating Officer d. General Counsel/Outside Counsel for Legal Matters e. Bookkeeping, Accounting & Tax Compliance 3. Insurance & Risk Management 4. Security 5. Life Style Management 6. Conflict Resolution

http://www.sec.gov/about/laws/sea34.pdfhttp://www.sec.gov/about/forms/form13f.pdfhttp://www.sec.gov/rules/final/2011/34-64976.pdf

7. Philanthropy

F. Other Issues

1. FCPA 2. Direct Investing

A. Due Diligence B. Manager Due Diligence and Oversight C. Direct and Indirect Investors

Family Office Club & Billionaire Family Office | Richard C. Wilson | [email protected]

Global Family Office Benchmark Survey

We are conducting an ongoing family office benchmark study, to date, we

have 181 responses, and we expect to reach our goal of 500 responses by the

end of 2015 with the help of our single family office network. If you would

like to participate, please visit http://SingleFamilyOffices.com/Survey

Current Family Office Survey Results: Please find below summary data

on the results of the survey to date. While some of these data points are

referenced and included in a few previous sections of the book, we thought

presenting them all together here in one place would be useful for some

readers who want to access this data later as a reference point. I hope you

find these data points as interesting and useful as we have.

mailto:[email protected]://singlefamilyoffices.com/Survey


mailto:[email protected]


If you would like to participate in this survey, please visit

http://SingleFamilyOffices.com/Survey

mailto:[email protected]://singlefamilyoffices.com/Survey

4 March 2015 The New York County Lawyer

By E. David Smith, Esq. and Yitzy Nissenbaum, Esq.

When I tell other attorneys that I rep-resent family ofces, many give me a puzzled look and say oh, so you do matri-monial law? Well, no.

Others think the term family ofce refers to a family-owned business. That may be closer to the truth.

So what is a family ofce? Essentially, it's a private company handling the affairs for a wealthy family. The Investopedia reference website denes family ofces as private wealth management advisory rms that serve ultra-high net worth investors. Family ofces are different from traditional wealth management shops in that they offer a total outsourced solution to managing the nancial and investment side of an afuent individual or family.1

Family ofces can serve very differ-ent purposes, providing services ranging from simply acting as a concierge ser-vice, arranging vacations and the like, to managing all the day-to-day operations for a family, including payroll activities, accounting, and legal issues.

The Family Ofce Exchange (FOX), the largest peer-to-peer network for ultra-wealthy families and their family ofces, identies seven common ofce types, although many family ofces are hybrids of the branded ofce types. These are: (1) Founder's Ofce; (2) Business Owner Ofce; (3) Diversied Business/Private Equity Ofce; (4) Investment Ofce; (5) Compliance Ofce; (6) Philanthropy Ofce; and (7) Multi-Generational Ofce.

The Founder's Ofce model is designed to support the founding family of the business and generally concerned with addressing issues outside the scope of the actual operating business. In contrast, a Business Owner's Ofce provides aid to the shareholders regarding the control and maintenance of the primary business. The Diversied Business/Private Equity Ofce assists the owners in extending the realm of their business activities beyond the original business. An Investment Ofce supports owners choosing public equity investing over private equity investing, overseeing the investment process. A Compliance Ofce serves in the area of wealth management, functioning to control costs. Sometimes the purpose of the family ofce is to aid the family in its philanthropic ventures and activities, with that type of ofce recog-nized as a Philanthropy Ofce. Finally, there is a Multi-Generational Ofce tasked with the challenge of delivering a broad range of offerings for family members of different generations.2

The array of family ofce types means that different family ofces have vastly different legal needs, with some ofces needing a full complement of legal services. A family ofce may need legal counsel related to tax plan-ning, estate and succession planning, trust planning, investment management, corpo-rate governance, real estate, employment, privacy, regulations, and insurance, to name

their wealth. Some of today's legendary investors have converted their hedge funds into family ofces. Steve Cohen, founder of SAC Capital Advisors, transformed his hedge fund into a family ofce in 2014, fol-lowing a string of highly publicized insider trading allegations against his company. George Soros also decided, in 2011, to change his hedge fund into a family ofce. These are just two examples from among the many renowned investors who have chosen the family ofce structure to man-age their portfolios.

While it is true that family ofces origi-nally catered only to the extremely wealthy, there has been a growth in family ofces as the structure's appeal becomes clear to oth-ers whose assets are slightly more modest.3 While there's little formal data denitively accounting for the number of family ofces, FOX estimates that there are 2,500 to 5,000 family ofces in the U.S., with another 6,000 informal family ofces operating inside privately-controlled businesses. Moreover, in Europe and Asia, where family ofces are a newer development, the number of family ofces is surging.

In addition to classifying family ofces according to their focus, as in the seven main categories above, family ofces can also be categorized according to the num-ber of families they represent: a single-fam-ily ofce (SFO) and a multi-family ofce (MFO). A SFO is a structure that manages the nancial and personal affairs of only one wealthy family. A MFO is broader in focus and supports multiple families in managing their affairs. Though this distinc-tion seems obvious, in reality the differences can be quite complex, and determining the established structure of the family ofce is critical for regulatory purposes.

Historically, family ofces sidestepped much of the SEC regulation imposed by the Investment Advisers Act of 1940 (IAA). The IAA, until recently, contained a private adviser exemption under Section 203(b)(3) ((15 U.S.C. 80b-3(b)), which allowed an investment adviser with fewer than 15 clients over a 12 month period to avoid registration with the SEC. Under the pri-vate adviser exemption many hedge funds, private equity funds, venture capital funds, and family ofces, which would include properly-structured multi-family ofces, were excluded from SEC oversight.

This law changed in 2010 when President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) into law. The new law elimi-nated the private advisor exemption, forc-ing entities that had previously been exempt from oversight to register with the SEC.

When Dodd-Frank was rst proposed, family ofces recognized that the elimina-tion of the exemption could compel family ofces to register with the SEC. In response, family ofce representatives joined to form the Private Investor Coalition, which spear-headed a lobbying effort to establish a for-mal denition of the term family ofce.

This lobbying effort succeeded in creat-ing a family ofce exemption from SEC registration, although this exemption was

(G)-1)), family ofces must meet certain SEC requirements to avoid being consid-ered an investment adviser. To meet these requirements, a family ofce must (1) have no clients other than family clients; (2) be wholly owned by family clients and exclu-sively controlled (directly or indirectly) by one or more family members and/or family entities; and (3) not hold itself out to the public as an investment adviser.

The rule also delineates who may be con-sidered a permissible family client. The non-exhaustive list primarily comprises family members, former family members, and key employees. Subject to certain conditions, it can also include former key employees. A family ofce is allowed to serve clients of non-prot or charitable organizations or estates of those members, if the organization or estate is funded exclu-sively by former or present family members and employees. Similarly, it can manage various trusts in which the trust is either controlled, conveyed, exclusively funded or has as an enumerated primary client a ben-eciary of the trust, and where a company is wholly owned and operated for the sole benet of family clients. The rule also allows certain family ofces to be grandfathered in to avoid registration with the SEC.5

A family ofce's legal needs do not begin and end with merely complying with regu-latory requirements. Numerous questions will arise in the formulation of a family ofce, even with an SEC exemption, as to what is the appropriate legal entity sta-tus for a family ofce. The choice of legal structure, whether it will be a partnership, a limited liability company (LLC), or a S Cor-poration, may have far-reaching tax impli-cations. Furthermore, complex issues can arise with respect to the needs and legalities of estate planning.

While family ofces are often like a corpo-ration, the legal counsel has a responsibility to the family behind the family ofce, since the family ofce is only a vehicle to accomplish the family's goals. Hence, legal counsel is required to confront any issues a family ofce faces with a critical eye to both the present and the future generations' possible goals.

This role is different from that of legal counsel to a regular corporation. In a regu-lar corporation, the goal is to maximize the return for shareholders, and shareholders can sell their shares if the return is not to their liking. In a family ofce, the interested parties are family members for life. They cannot just simply sell their interests and cash out. Therefore, there is a far greater interplay of the conicting interests of both the present and the future generations. Accordingly, a family ofce can have more nuanced and complex legal concerns than a typical Fortune 500 corporation.

The demands of the family ofce on its counsel will vary depending on the services it provides, which could include corporate work, intellectual property work, compli-ance, information governance, and assis-tance on mergers and acquisitions. Since family ofces typically engage in direct investments, they will need legal advice on how to best perform legal and regulatory

the interests of family members from dif-ferent generations. All too often, this raises difcult questions about who, exactly, is the client, creating potential conicts of interest for an attorney, particularly with respect to attorney-client privilege.

To learn more about family ofces, join us at NYCLA's CLE on the topic, Family Ofces: A to Z about acting as legal counsel for a Family Ofce on April 21. Visit nycla.org to learn more and register.

E. David Smith, Esq., is outside general counsel for US-based companies and international entities focusing on positioning companies for growth

opportunities and mitigating risk. Combining his experience in corporate transactions, nancing and governance, corporate litigation and intellectual property, he provides strategy and quarterbacks companies' and family ofces' legal needs. As part of guiding his clients in the creation and growth of their wealth, he counsels clients in asset preservation.

Yitzy Nissenbaum, Esq.,is a practicing attorney in NY. He was formerly Of Counsel with Kirkland & Ellis and an Associate with Kenyon & Kenyon. He is an active

member in various NYCLA Committees, including the Federal Courts Committee and the Cyberspace Law Committee. He is also currently serving as a Chair of NYCLA's newly formed Lawyers in Transition Committee.

1 Family Ofces, Def. INVESTOPEDIA, available at http://www.investopedia.com/terms/f/family-ofces.asp (last vis-ited February 5, 2015).

2 Types of Family Ofces, Seven Com-mon Models Dened, FAMILY OFFICE EXCHANGE, available at https://www.familyofce.com/understanding-family-ofce/types-family-ofces (last visited February 5, 2015).

3 See Julie Steinberg & Kelly Greene, Finan-cial Advice, Served Rare, WALL ST. J., May 17, 2013, http://www.wsj.com/articles/SB10001424127887323551004578441002331568618 (last visited February 5, 2015).

4 Family Ofce, INVESTMENT ADVIS-ERS ACT RELEASE NO. 3220 (June 22, 2011), available at http://www.sec.gov/rules/nal/2011/ia-3220.pdf (last visited February 5, 2015).

5 Id. 6 See E. David Smith, Make Sure your Direct Investments Float Your Boat, Don't Sink it, FAMILY OFFICE CAPITAL NETWORK (FOCAPNET), available at http://edslaw.net/wordpress/wp-content/uploads/2014/03/FOCAPNET-Make-Sure-Your-Direct-Investments-Float-Your-Boat-Dont-Sink-It.pdf (last visited February 5, 2015).

New Frontiers in Family Ofces


Creating a Family OfficePantheon Process: One of the core values in our office at

Billionaire Family Office and other related Wilson Holding Company operating businesses is

Pantheon Thinking which to us means thinking long-term over a generation of time about what

we are building, what value we are providing, and why we are investing energy into a project.

Below is the five-part process that we are using right now to help one of our family clients create

their single family office:

1. Listening & Needs Assessment (Estimated Time NeededTwo Weeks): Identify what

is known, expected, review past troubles, stories of others to emulate. Follow on active

dialogue to dig into issues deeper, explore and define priorities.

2. Family Office Compass Construction (Estimated Time NeededOne to Three

Months): Values, Mission, Objectives, Constraints, Governance, Ethics, Confidentiality,

Public Image, Life management, etc. (Active dialogue).

3. Resource & Talent Assessment (Estimated Time NeededTwo Weeks): Family Office

Construction Plan, Timeline & Budget, Advisory Board Construction & Missing

Professional Roles.

4. Implementation Phase (Estimated Time NeededTwo to Six Months).

5. Ongoing Operations, Processes, and Investment Decision Making Policies (Estimated

Time NeededOngoing).

Video: Here is one of the more popular videos that I recorded on

starting a family office:

http://SingleFamilyOffices.com/Startup

Family Office Location: Where your family office is located is

important and it can affect taxation, your level of hands-on management of your family office,

team, and steady access to industry talent and outsourcing firms.

While many families simply set up their single family office in

the location where their wealth was created, but some states are

less tax friendly to millionaires and billionaires. For this reason,

many single family offices are based or structured in places that

have lower taxes, such as Texas, Florida, and Nevada in the

United States. Abroad, favored destinations are London,

Bahamas, Puerto Rico, Monaco, Singapore, Switzerland, and the

Cayman Islands.

We have identified Florida as an especially attractive location

for many family offices, particularly Miami. The state has

established a pro-business climate and receptiveness to affluent

individuals, unlike some other states or locales that tax businesses, investments, and wealth

mailto:[email protected]://singlefamilyoffices.com/Startup/http://singlefamilyoffices.com/startup/


excessively. There are a growing number of family offices establishing offices in Miami and

many large single and multi-family offices at least have one team member in Florida. In addition

to our New York City office, I personally have moved to Key Biscayne, an island community

just a few minutes from Miami.

In some places, such as the Cayman Islands, legal structures and representatives are all that is

tied to the location. But with most of the family living nearby, they may have changed their place

of residence to establish their single family office. In some cases, changing the location of the

family office could save enough money annually to operate the entire single family office.

Video: If you havent considered starting a virtual family office,

you may want to look into this. Here is a short video I recorded in

Berlin on Virtual Family Offices:

http://SingleFamilyOffices.com/Virtual

Accounting & Administration: While the CFO or CIO of most single family offices has some

form of accounting background, the accounting and administration work at many small to mid-

sized family offices is outsourced. The administration in a family office involves formal

reporting, value calculations, and distribution calculations for various members of the family.

Traditional accounting is more challenging for a family office than a typical business because of

illiquid assets such as: real estate, operating businesses, large public stock market investments,

hedge fund allocations, and venture capital or private equity commitments. Any of these illiquid

investments may pose valuation challenges and potential tax liabilities. Creating systems and

processes to accomplish this requires some powerful technology solutions.

Technology Solutions: Many family offices face significant IT expenses to cover accounting,

fund administration, reporting, aggregation of trading, overall portfolio risk vs returns tracking,

data room services, risk management, and inter-family or team communication. Aggregating

accounts and building custom reporting or accounting systems can become very costly. Many

family offices spend $20,000-$100,000 on technology and software each year, but larger ones

often spend over $200,000 annually.

Direct Investing & Operating Businesses: Our research indicates that more than 85% of single

family offices own operating businesses, and typically these holdings make up 40-75% of the

familys net worth. One 6th generation family that I know has diversified their investments

across a dozen different industries, while others that I know only invest in certain industries like

commodity businesses, for example, because that is where they made their wealth initially.

While direct investing has always been a top priority for Asian and Middle Eastern families, it is

just now thriving as a core component of single family offices in the United States which in the

past had done direct investing, but also had trusted more in traditional private equity funds and

the public markets. We have included this area in a few chapters in this book because it is

critical that families who are newly ultra-wealthy or operating a single family office know how

mailto:[email protected]://singlefamilyoffices.com/Virtualhttp://singlefamilyoffices.com/virtual/


other families manage their direct investments, operate these holdings, co-invest with other

families, and participate in club deals.

Investment Management: Traditional investment management covers a familys investing

activities in publicly traded equities, cash equivalents, real estate, commodities, hard assets,

bonds, money market funds, REITS, mutual funds or ETFs, MLPs, and alternative investment

funds, such as private equity or hedge funds. Part Three of this book touches on these areas of

investment management in detail.

Risk Management: Every area of investment brings with it different types of risks. For each

type of investment (real estate, operating business, alternative investment fund, etc.), your risk

should be analyzed separately or classified so that the unique risks to that area can be assessed by

a professional who is familiar with the area. Families can manage risk by using seasoned

investment professionals, risk consultants, independent insurance advisors, and, to some degree,

their internal systems and real-time investment reporting. While forming your family office, you

will need to assess which types of risk are most prevalent given the investments you are making,

and what processes, professionals, and systems are in place to mitigate those risks. Managing

risk and protecting capital are the chief reasons why most family offices are established.

Insurance: By the time someone becomes ultra-wealthy, they typically have multiple types of

insurance in place. The goal of the single family office is to assess the technical coverage of the

insurance against the real risks that the individual or family faces. Many policies may have

overlapping coverage, exclusions, or technicalities that could be devastating for the client. The

types of insurance often used for families of exceptional wealth include personal and business

property, excess liability or umbrella policies, general liability, and life insurance. This list is not

comprehensive and an insurance professional with extensive experience in the field should be

consulted or hired in-house before making changes to coverage. The level of insurance will

depend on the operations, direct investments, liquidity of the familys wealth, and

intergenerational considerations.

Philanthropy and Charitable Giving: Philanthropy can be a way to unite multiple generations

of a family, create good press for a business, and add meaning to an ultra-wealthy familys work.

One client of mine explained to me that he didnt need any more money for himself; he wouldnt

even know what to do with it really. He simply works now to give more away every year to

children in need and that is what motivates him to make sure his businesses perform well now.

There is a lot of confusion and even conflict around the idea of giving away money that the

family has worked so hard to earn. The issues you may face include:

1. A lack of understanding by second and third generation family members, which may

lead to frustration, arguments within the family, and disappointment if someone feels

like they are not getting their expected fair share. Establishing your familys core

values, objectives, and mission first will help avoid this type of trouble.



2. Being aware of the taxation rules and documentation procedures that apply to writing off

monetary donations to a non-profit or foundation administered by a family member.

3. Ensuring that there is some governance and process around how and when the money is

given away. Once these are set in place, you need to resolve how you deal with giving

opportunities which dont fit within those procedures. A governance process should be

followed even when exceptions arise.

I grew up around my father advising ultra-wealthy individuals and non-profit hospitals and

universities on philanthropy. My father has raised over $1B for these groups through this

philanthropy advisory work and this led to an early appreciation for what goes into ensuring

donors are getting a positive ROI as well as transparency on their donated money.

Privacy & Control: While setting up a family office, the level of public exposure needs to be

decided early on in the process. Will the family have a public-facing website or will everything

be hidden behind a password-protected area online? Will staff have business cards, encouraged

to write books, allowed to attend conferences and speak at seminars, or will they even be allowed

to speak on the record in any way? If so, is there a process that they must follow regarding

certain non-disclosure rules? Many $1B+ single family offices have been quoted in this book,

speak at our events, and otherwise provide value publicly; but most of these executives have

little direct motivation to do so, as they cant accept new clients even if they are approached by

them. Privacy policies regarding family matters should be set up from the beginning and

violations of these policies should be met with swift repercussions in order to set an example to

other team members. As I mentioned in my last book on family offices, many people in this

space like to operate on the theory that a submerged whale does not get harpooned. As a

number of families have learned, once a thread is revealed, a media professional will keep

pulling until he or she unravels a story. This might mean that the original story is blown out of

proportion or exaggerated in subsequent reports. Privacy controls and media relations processes

help to guard against these issues. One simple compromise is to create a holding company

which operates under The XYZ Single Family Office name instead of the familys name to keep

the press and general public at arms length away from the actual family.

Security: Even families who primarily reside in the United States have a wide variety of

security measures in place, ranging from identify theft prevention, background checks, ex-

military drivers, random insurance, and bulletproof cars and bodyguards while traveling abroad.

Defining what these risks are, how much it would take to mitigate them, and how far the family

wants to go to improve their safety is something that should be discussed upfront. Often, this

important issue is glossed over by traditional wealth management firms and private banks.

Press & Public Relations: From the beginning, it should be decided

what public relations and press goals exist. As we discussed in the

previous chapter, a familys PR needs depend greatly on their investing

and personal activities. Does the family want to stay 100% below-the-



radar, or use their foundation and philanthropic activities to shed a positive light on the family

and connect commercial enterprises?

Some families may want to capture their legacy within a book and video format to help carry on

their message to future generations or the general public. Many families shy away from

attention, but dont often have an open discussion of the trade-offs involved in adopting a public

vs. private strategy.

Concierge Services & Lifestyle Management: Many single family offices have the side

benefit of helping leverage the patriarch or entire family with

lifestyle and concierge services. These services can include

assistance with purchasing concert tickets, chartering a helicopter or

private plane, ordering a wedding dress, renting a car, or simply

planning a trip.

These services could also involve interviewing potential nannies

for a child, visiting prospective private schools and evaluating them, or helping manage the

familys calendar and activities. Most multi-family offices shy away from offering any

concierge services because they are afraid of losing a $100 million account over ordering the

wrong wedding dress, but this is a significant benefit of having a single family office.

Strategic Partners & Outsourcing Solutions: Many entrepreneurs are thrifty at heart; they

dont want to spend too much money on an area like an accounting department if they dont feel

that is their strength. This thriftiness and the hope that a lean single family office can be created

drive many organizations to refer their investment work to an outsourced chief investment

officer service or investment consultant. This allows the family office to focus their energy

exclusively on those few industries that they feel like they have a strategic advantage in, such as

real estate, commodity investments, or industry-specific operating businesses.

The desire for an internal focus on core competencies has led to a major trend of outsourcing

many areas of a single family office and dozens of options exist for those who wish to do so.

The number one strategic priority in this first phase of setting up a single family office should be

in creating the strongest brain trust possible for the family.

Scenario Planning: While deciding what expertise you need on your board and core team, think

through the top five to seven most likely and extreme scenarios and how you would react to each

of them. These scenarios could include another Great Recession, death of the patriarch or

matriarch, a lawsuit, a change in industry norms, and other undesirable events. If you agree on

what these scenarios are, write out a series of step-by-step instructions and assign the power for

someone to carry those out in case the situation ever arises. You will then be able to identify

which experts are still missing from the advisory board or core team. This type of scenario

planning activity can create an improved sense of comfort for the wealth creator.



Critical Questions: Anyone that recommends a type of family office that you should create

before at least asking many of the questions provided to you below as a minimum starting point

may not understand your personal goals, values, and objectives. The following should serve as a

starting point for getting down to the core needs of your single family office:

Information Gathering:

1. How did you first hear about family offices, single family offices, and what is your

understanding of what a single family office is and isnt?

2. What form of a single family office or wealth management solution do you have in place

right now?

3. What has been your experience with this current solution and past ones that were in place

before it?

4. Why do you want to form a single family office?

5. Are there a few single family offices or ultra-wealthy individuals that you have heard of

or would like to emulate in the creation of your family office?

6. What are your top two fears in setting up a single family office; what do you want to

avoid at all costs?

7. What is more important to you, capital preservation, growth of wealth, taxation, or

income?

8. Which of these items is most important to you in managing your non-operating-business

investible assets: peace of mind with light oversight, active involvement, extreme

diversification, or focused industry investments in areas that you understand?

9. Can you provide us access to your balance sheet, financial reports, estate plans, and other

financial details so that we can put together a high-level view of your finances?

10. Who are your most trusted advisors?

11. If not already mentioned, who do you trust most in the areas of wealth management,

taxation, real estate, direct investments, and trust & estate planning?

12. Which of your advisors do you need to replace, and which are good but not great?

13. Is there an advisor or two so excellent that a second opinion to make sure everything is

set up right legally, operating effectively, and insured to the right levels would not be

needed?

14. What pieces of wealth management and asset protection do you have in place that you

would want to keep going forward?

15. What insurance policies do you current have, and what assets are these protecting?



16. What is your total liquid and illiquid net worth and where is that money invested right

now?

17. What types of legal structures do you have set up around your assets, real estate, public

market, land, business, joint venture, co-investment, and other types?

18. What level of retirement planning and asset protection strategies do you have in place

now or would like to have in place?

19. What is your investment risk appetite?

20. What are your income needs annually for you and your extended family?

Digging in with Deeper Questions

1. Is it most important to be quick, or lean, or have ultimate control and transparency on

decisions and the investment portfolio? This mindset going into these deeper questions is

important, as every option has a trade-off.

2. Do you want to keep a low profile or be a high profile single family office that attracts

attention and as a result, deal flow as well? How will you fly under the radar and keep

a low profile if that is what you want to achieve?

3. What type of day-to-day control, management, and decision-making responsibilities do

you want for yourself?

4. To what degree do you want to rely on family members for core family office positions

such as CEO, CIO, Portfolio Manager, etc.?

5. What is your annual budget for operating the single family office operations?

6. How are investments being structured?

7. How will you set up legal structures and investments so that multi-generations are being

considered or planned for in each case? Or is that even important to you and your family

right now?

8. How will you insert the perspective and opinion of your tax advisor into every investment

move you make, so mistakes arent made on investments, purchases, location decisions,

etc.?

9. Where are your personal and business assets located now, and what possible locations

would you want to have an office or team in, vs. your personal residence?

10. How will complex assets be managed, such as sports teams, commercial real estate,

boats, vacation houses, bullion, etc.?

11. Have you spoken to an attorney on where to domicile your assets, and have you

considered that being different from where your team is based?



12. Who is going to be on your advisory board and investment committee and how often do

you plan on having those two groups meet?

13. How will charitable giving decisions be made?

14. Will someone be in charge of family concierge services, such as family trip planning, car

rentals & purchases, etc.?

15. Are you going to set up a family bank of some type, and are intra-family loans provided

if certain terms are agreed to?

16. What powers and real decision-making authority will the CEO or President of the single

family office have, particularly if that person is not going to be you?

17. What will be the scope of investments for the organizationwill you only invest in one

industry, diversify into all types of hedge funds, CTA funds, private equity funds, real

estate, etc.?

18. How strategic vs. tactical do you want to be with your investments? Do you want to have

two investment committeesone that is strategic and meets monthly and one that is

tactical and meets weekly and can meet on-demand intra-day as needed?

19. What is the investment mandate and priorities, how much income is needed to be

produced monthly, how important is holding cash, preserving capital, investing globally,

etc.?

20. How will you set up governance for the single family office? Who will be able to hire

service providers, fund managers, etc. in a way that ensures favors arent being done for

college friends, or family members of employees or your own family, to the detriment of

the investment portfolio.

21. What types of insurance, security, and risk mitigation solutions do you need in place for

your organization and family overall?

22. How will you define success for your single family office?

Implementation Questions

1. By what date would you like the single family office to launch and be baseline

operational?

2. Who is going to be the project manager in charge of this single family office launch to

make sure that bottlenecks are taken care of, and details are managed along the way?

3. What do you foresee as the top three challenges in getting launched? Here is a hint,

identifying and recruiting talent, and deciding on legal domicile/residence location can

both slow things down by an entire year or more in some cases.

4. What is needed to get operational vs. fully launched and operating in a more robust long-

term established manner?



5. What daily, week, and monthly things need to happen like clockwork in the single family

office to operate at full steam? Who needs to create what report, what systems are

needed, what daily meetings, payroll processing, portfolio reviews, etc.? Create an

operational binder for the single family office which answers this question.

Family Office Startup Checklist: The following is a high-level list of things which you should

consider having in place while forming a single family office. This list is not exhaustive, and

would need some customization for each familys unique needs and goals, but it should help

guide the process.

A Family Compass document has been created to ensure that from the beginning, the

vision, objectives, goals, values, mission, and history of the family has been documented

and incorporated into the investing and operating plans of the single family office.

An operating plan on how day-to-day activities are carried out within the single family

office has been established. A binder has been created which documents each of the Key

Performance Indicators and critical processes to ensure the family office is operating as it

should.

Financial controls are in place to prevent embezzlement, unauthorized investments, and

style drift within an investment portfolio.

A core team has been identified and one individual has been appointed as the single

family office CEO and/or CIO to act as the key executive making operational and/or

investment decisions.

Ethics and governance policies have been established to set out expectations for how

personnel decisions are made, who can use family assets for personal benefit, how

conflicts of interest should be managed, and what ethical obligations each family member

is under.

Legal structures set up properly for real estate holdings, operating businesses,

investments, etc. Legal counsel has reviewed the entities to ensure that if one goes

bankrupt or gets sued that it would not take down the entire family empire.

Independent insurance professionals have been consulted who are not on commission to

sell you more insurance to ensure proper coverage.

Contingency plans for death, disasters, divorces, etc. how adaptations to breaking up the

larger family office or changing family goals/values will be dealt with, etc.

A diverse advisory board and investment committee have been established with policies

on how they operate and help oversee governance issues within the single family office.


1

U.S. COMMODITY FUTURES TRADING COMMISSION Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581 Telephone: (202) 418-5977 Facsimile: (202) 418-5407

[email protected]

Division of Swap Dealer and Intermediary Oversight

Gary Barnett Director

CFTC Letter No. 12-37

No-Action

November 29, 2012

Division of Swap Dealer and Intermediary Oversight

Re: Family Offices

This letter is in response to written correspondence to and telephonic conversations with

(together, the Correspondence) Division of Swap Dealer and Intermediary Oversight ( the

Division) requesting that the Division address the rescission of Regulation 4.13(a)(4)1 through

the adoption of relief for certain family offices from Part 4 of the Commissions Regulations.

A family office is, generally, a professional organization that is wholly-owned by clients

in a family and is exclusively controlled (directly or indirectly) by one or more members of a

family and/or entities controlled by a family. Typically, a family office structure is employed

when one or more direct members of a family create substantial wealth, and share that wealth in

whole or in part with other members of that family, either through direct transfer, inheritance, or

similar means. The family office is then used to provide personalized services to that family,

including advice regarding issues of tax, estate planning, investment, and charitable giving.

In February 2012, the Commission promulgated certain amendments to Part 4 of the

Commissions Regulations.2 Notable, and at issue here, is the rescission of Regulation

4.13(a)(4), which had previously exempted from registration3 Commodity Pool Operators

(CPOs) who, inter alia, operated a pool for only those individuals who met a certain qualified

eligible person standard.4 In general, family offices relied on Regulation 4.13(a)(4) as an

exemption from registration. Pursuant to these recent amendments, absent affirmative relief,

many family offices would be required to register with the Commission as a CPO.

The Correspondence asserts generally, that family offices are not operations of the type

and nature that warrant regulatory oversight by the Commission. That is, because a family office

is comprised of participants with close relationships, and there is a direct relationship between

1 See, Commodity Pool Operators and Commodity Trading Advisors: Amendments to Compliance Obligations,

77 FR 11252 (Feb. 24, 2012); correction 77 FR 17328 (March 26, 2012). 2 Id.

3 In addition to an exemption from registration as a commodity pool operator, 4.13(a)(4) functionally relieved such

commodity pool operators from the disclosure and compliance requirements of the Commissions Regulations. 4 The qualified eligible person standard is comprised primarily of criteria based on assets owned by an individual

or entity.

Family Offices

Page 2

the clients and the adviser, such relationships greatly reduce the need for the customer

protections available pursuant to Part 4 of the Commissions Regulations. Importantly, as a

function of these relationships, any disputes that arise between any of the family members

concerning the operation of the family office could be resolved within that family unit, or

through state courts under laws designed to resolve such family disputes.5

Further, it has been suggested that this issue has similarly been addressed by the

Securities and Exchange Commission (SEC), which resulted in an exclusion for family offices

that would otherwise be required to register as an investment adviser.6 The Division notes that

the SEC has devoted substantial time and resources to addressing this issue. Further, the

Division observes that the fundamental issue of the appropriate application of investor protection

standards as required by each respective agencys regulations is substantially similar in the issue

at hand. The Division further notes that placing both agencies on equal footing with respect to

the application of investor protections relevant to this issue will facilitate compliance with both

regulatory regimes.

Based on the foregoing, the Division will not recommend that the Commission take an

enforcement action for failure to register with the Commission as a CPO against a CPO that is a

Family Office within the meaning and intent of 17 CFR 275.202(a)(11)(G)-1, as amended,

provided that the CPO complies with the following requirements.

Family Office No-Action

The Division will not recommend enforcement action for failure to register with the

Commission as a CPO against any CPO that is a Family Office as defined by the SEC, provided

that the CPO (i) submits a claim to take advantage of the relief, and (ii) remains in compliance

with 275.202(a)(11)(G)-1, as amended, regardless of whether the CPO seeks to be excluded

from the Investment Advisers Act of 1940.

Claim of No-Action Relief

This relief is not self-executing. Rather, an eligible CPO must file a claim to perfect the

relief. A claim submitted by a CPO will be effective upon filing, so long as the claim is

complete.

Specifically, the claim of no-action relief must:

a. State the name, main business address, and main business telephone number of the CPO claiming the relief;

5 This rationale is also noted in the adopting release of the SECs family office exclusion. See, Family Offices; Final

Rule 76 FR 37983 at 37984 (June 29, 2011). 6 Id. The Division notes that the SEC rule explicitly does not apply to multifamily offices, which are family

offices serving multiple families. Id. at 37991. Accordingly, the relief in this letter does not extend to multifamily

offices.

Family Offices

Page 3

b. State the capacity (i.e., CPO) and, where applicable, the name of the pool(s), for which the claim is being filed;

c. Be electronically signed by the CPO; and d. Be filed with the Division using the email address [email protected] with the

subject line of such email as Family Office prior to December 31, 2012 (for a

Family Office in operation as of December 1, 2012) or, for a Family Office that

begins to operate after December 1, 2012, within 30 days after it begins to operate

as a Family Office.

Further, prior to March 31, 2013 (or, for a Family Office that begins to operate after that

date, within 30 days after it begins to operate as a Family Office), it must confirm that the CPO

is a Family Office within the meaning and intent of 17 CFR 275.202(a)(11)(G)-1, and that the

CPO will notify the Division if it is no longer a Family Office within the meaning and intent of

such regulation.

The no-action relief provided herein contains a collection of information, as that term is

defined in the Paperwork Reduction Act.7 Therefore, a control number for the collection must be

obtained from the Office of Management and Budget. In accordance with 44 U.S.C. 3507(d)

and 5 C.F.R. 1320.8 and 1320.10, the Division will, by separate action, prepare an

information collection request for review and approval by OMB, and will publish in the Federal

Register a notice and request for public comments on the collection burdens associated with the

no-action relief. If approved, a family office may not rely on the Division's determination not to

recommend an enforcement action to the Commission unless the vehicle provides the

information the Division has determined is essential to the provision of no-action relief.

In granting CPOs the relief described herein, the Division seeks to strike the appropriate

balance between the Commissions regulatory objectives and addressing the public concerns of

Family Offices and family clients. As such, the Division believes that not recommending

enforcement action will address these concerns.

This letter, and the positions taken herein, represent the view of this Division only, and

do not necessarily represent the position or view of the Commission or of any other office or

division of the Commission. The relief issued by this letter does not excuse the affected persons

from compliance with any other applicable requirements contained in the Act or in the

Commissions regulations issued thereunder. For example, affected persons remain subject to all

antifraud provisions of the Act. Further, this letter, and the relief contained herein, is based upon

the representations made to the Division. Any different, changed or omitted material facts or

circumstances might render this letter void.

7 44 U.S.C. 3501 et. seq.

Family Offices

Page 4

Should you have any questions, please do not hesitate to contact Amanda Olear, Special

Counsel, at 202-418-5283 or Michael Ehrstein, Attorney-Advisor, at 202-418-5957.

Very truly yours,

Gary Barnett

Director,

Division of Swap Dealer

and Intermediary Oversight

cc: Regina Thoele, Compliance

National Futures Association, Chicago

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 13F

OMB APPROVAL OMB Number: 3235-0006 Expires: b July 31, 2015Estimated average burden hours per response. . . . . .23.8

INFORMATION REQUIRED OF INSTITUTIONAL INVESTMENT MANAGERS PURSUANT TO SECTION 13(f) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULES THEREUNDER

GENERAL INSTRUCTIONS

1. Rule as to Use of Form 13F. Institutional investment managers (Managers) must use Form 13F for reports to the Commission required by Section 13(f) of the Securities Exchange Act of 1934 [15 U.S.C. 78m(f)] (Exchange Act) and rule 13f-1 [17 CFR 240.13f-1] thereunder. Rule 13f-1(a) provides that every Manager which exercises investment discretion with respect to accounts holding Section 13(f) securities, as defined in rule 13f-1(c), having an aggregate fair market value on the last trading day of any month of any calendar year of at least $100,000,000 shall file a report on Form 13F with the Commission within 45 days after the last day of such calendar year and within 45 days after the last day of each of the first three calendar quarters of the subsequent calendar year.

2. Rules to Prevent Duplicative Reporting. If two or more Managers, each of which is required by rule 13f-1 to file a report on Form 13F for the reporting period, exercise investment discretion with respect to the same securities, only one such Manager must include information regarding such securities in its reports on Form 13F .

A Manager having securities over which it exercises investment discretion that are reported by another Manager (or Managers) must identify the Manager(s) reporting on its behalf in the manner described in Special Instruction 6.

A Manager reporting holdings subject to shared investment discretion must identify the other Manager(s) with respect to which the filing is made in the manner described in Special Instruction 8.

3. Filing of Form 13F. A Manager must file a Form 13F report with the Commission within 45 days after the end of each calendar year and each of the first three calendar quarters of each calendar year. As required by Section 13(f)(5) of the Exchange Act, a Manager which is a bank, the deposits of which are insured in accordance with the Federal Deposit Insurance Act, must file with the appropriate regulatory agency for the bank a copy of every Form 13F report filed with the Commission pursuant to this subsection by or with respect to such bank. Filers who file Form 13F electronically can satisfy their obligation to file with other regulatory agencies by sending (a) a paper copy of the EDGAR filing (provided the Manager removes or blanks out the confidential access codes); (b) the filing in electronic format, if the regulatory agency with which the filing is being made has made provisions to receive filings in electronic format; or (c) for filers filing in paper format under continuing hardship exemptions, a copy of the Form 13F paper filing.

4. Official List of Section 13(f) Securities. The official list of Section 13(f) Securities published by the Commission (the 13F List) lists the securities the holdings of which a Manager is to report on Form 13F. See rule 13f-1(c) [17 CFR 240.13f-1(c)]. Form 13F filers may rely on the current 13F List in determining whether they need to report any particular securities holding. The current 13F List is available on www.sec.gov/divisions/investment/13flists.htm. The 13F List is updated quarterly.

INSTRUCTIONS FOR CONFIDENTIAL TREATMENT REQUESTS

Pursuant to Section 13(f)(4) of the Exchange Act [15 U.S.C. 78m(f)( 4)], the Commission (1) may prevent or delay public disclosure of information reported on this form in accordance with Section 552 of Title 5 of the United States Code, the Freedom of Information Act [5 U.S.C. 552], and (2) shall not disclose information reported on this form identifying securities held by the account of a natural person or an estate or trust (other than a business trust or investment company). A Manager must submit in accordance with the procedures for requesting confidential treatment any portion of a report which contains information identifying securities held by the account of a natural person or an estate or trust (other than a business trust or investment company).

Persons who respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control SEC 1685 (1-12) number.

A Manager should make requests for confidential treatment of information reported on this form in accordance with rule 24b-2 under the Exchange Act [17 CFR 240.24b-2]. Requests relating to the non-disclosure of information identifying the securities held by the account of a natural person or an estate or trust (other than a business trust or investment company) must so state but need not, in complying with paragraph (b)(2)(ii) of rule 24b-2, include an analysis of any applicable exemptions from disclosure under the Commissions rules and regulations adopted under the Freedom of Information Act [17 CFR 200.80].

Paragraph (b) of rule 24b-2 requires a Manager filing confidential information with the Commission to indicate at the appropriate place in the public filing that the confidential portion has been so omitted and filed separately with the Commission. A Manager should comply with this provision by including on the Summary Page, after the Report Summary and prior to the List of Other Included Managers, a statement that confidential information has been omitted from the public Form 13F report and filed separately with the Commission.

AManager must file in paper, in accordance with rule 101(c)(1)(i) of Regulation S-T [17 CFR 232.101(c)(1)(i)], all requests for and information subject to the request for confidential treatment filed pursuant to Section 13(f)(4) of the Exchange Act. If a Manager requests confidential treatment with respect to information required to be reported on Form 13F, the Manager must file in paper with the Secretary of the Commission an original and four copies of the Form 13F reporting information for which the Manager requests confidential treatment.

AManager requesting confidential treatment must provide enough factual support for its request to enable the Commission to make an informed judgment as to the merits of the request. The request should address all pertinent factors, including all of the following that are relevant:

1. If confidential treatment is requested as to more than one holding of securities, discuss each holding separately unless the Manager can identify a class or classes of holdings as to which the nature of the factual circumstances and the legal analysis are substantially the same.

2. If a request for confidential treatment is based upon a claim that the subject information is confidential, commercial or financial information, provide the information required by paragraphs 2.a through 2.e of this Instruction except that, if the subject information concerns security holdings that represent open risk arbitrage positions and no previous requests for confidential treatment of those holdings have been made, the Manager need provide only the information required in paragraph 2.f.

a. Describe the investment strategy being followed with respect to the relevant securities holdings, including the extent of any program of acquisition and disposition (note that the term investment strategy, as used in this instruction, also includes activities such as block positioning).

b. Explain why public disclosure of the securities would, in fact, be likely to reveal the investment strategy; consider this matter in light of the specific reporting requirements of Form 13F (e.g., securities holdings are reported only quarterly and may be aggregated in many cases).

c. Demonstrate that such revelation of an investment strategy would be premature; indicate whether the Manager was engaged in a program of acquisition or disposition of the security both at the end of the quarter and at the time of the filing; and address whether the existence of such a program may otherwise be known to the public.

d. Demonstrate that failure to grant the request for confidential treatment would be likely to cause substantial harm to the Managers competitive position; show what use competitors could make of the information and how harm to the Manager could ensue.

e. State the period of time for which confidential treatment of the securities holdings is requested. The time period specified may not exceed one (1) year from the date that the Manager is required to file the Form 13F report with the Commission.

f. For securities holdings that represent open risk arbitrage positions, the request must include good faith representations that:

2

i. the securities holding represents a risk arbitrage position open on the last day of the period for which the Form 13F report is filed; and

ii. the reporting Manager has a reasonable belief as of the period end that it may not close the entire position on or before the date that the Manager is required to file the Form 13F report with the Commission.

If the Manager makes these representations in writing at the time that the Form 13F is filed, the Commission will automatically accord the subject securities holdings confidential treatment for a period of up to one (1) year from the date that the Manager is required to file the Form 13F report with the Commission.

g. At the expiration of the period for which confidential treatment has been granted pursuant to paragraph 2.e or 2.f of this Instruction (the Expiration Date), the Commission, without additional notice to the reporting manager, will make such security holdings public unless a de novo request for confidential treatment of the information that meets the requirements of paragraphs 2.a through 2.e of this Instruction is filed with the Commission at least fourteen (14) days in advance of the Expiration Date.

3. If the Commission grants a request for confidential treatment, it may delete details which would identify the Manager and use the information in tabulations required by Section 13(f)(4) absent a separate showing that such use of information could be harmful.

4. Upon thedenialby theCommissionofa request forconfidential treatment, orupon theexpirationof theconfidential treatment previously granted for a filing, unless a hardship exemption is available, the Manager must submit electronically, within six (6) business days of the expiration or notification of the denial, as applicable, a Form 13F report, or an amendment to its publicly filed Form 13F report, if applicable, listing those holdings as to which the Commission denied confidential treatment or for which confidential treatment has expired. If a Manager files an amendment, the amendment must not be a restatement; the Manager must designate it as an amendment which adds new holdings entries. The Manager must include at the top of the Form 13F Cover Page the following legend to correctly designate the type of filing being made:

THIS FILING LISTS SECURITIES HOLDINGS REPORTED ON THE FORM 13F FILED ON (DATE) PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND FOR WHICH (THAT REQUEST WAS DENIED/CONFIDENTIAL TREATMENT EXPIRED) ON (DATE).

SPECIAL INSTRUCTIONS

1. This form consists of three parts: the Form 13F Cover Page (the Cover Page), the Form 13F Summary Page (the Summary Page), and the Form 13F Information Table (the Information Table).

2. When preparing the report, omit all bracketed text. Include brackets used to form check boxes.

The Cover Page:

3. The period end date used in the report (and in the EDGAR submission header) is the last day of the calendar year or quarter, as appropriate, even though that date may not be the same as the date used for valuation in accordance with Special Instruction 9.

4. Amendments to a Form 13F report must either restate the Form 13F report in its entirety or include only holdings entries that are being reported in addition to those already reported in a current public Form 13F report for the same period. If the Manager is filing the Form 13F report as an amendment, then, the Manager must check the amendment box on the Cover Page; enter the amendment number; and check the appropriate box to indicate whether the amendment (a) is a restatement or (b) adds new holdings entries. Each amendment must include a complete Cover Page and, if applicable, a Summary Page and Information Table. See rule 13f-1(a)(2) [17 CFR 240.13f-1(a)(2)].

5. Present the Cover Page and the Summary Page information in the format and order provided in the form. The Cover Page may include information in addition to the required information, so long as the additional information does not, either by its nature, quantity, or manner of presentation, impede the understanding or presentation of the required information. Place all additional information after the signature of the person signing the report (immediately preceding the Report Type section). Do not include any additional information on the Summary Page or in the Information Table.

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6. Designate the Report Type for the Form 13F report by checking the appropriate box in the Report Type section of the Cover Page, and include, where applicable, the List of Other Managers Reporting for this Manager (on the Cover Page), the Summary Page and the Information Table, as follows:

a. If all of the securities with respect to which a Manager has investment discretion are reported by another Manager (or Managers), check the box for Report Type 13F NOTICE, include (on the Cover Page) the List of Other Managers Reporting for this Manager, and omit both the Summary Page and the Information Table.

b. If all of the securities with respect to which a Manager has investment discretion are reported in this report, check the box for Report Type 13F HOLDINGS REPORT, omit from the Cover Page the List of Other Managers Reporting for this Manager, and include both the Summary Page and the Information Table.

c. If only part of the securities with respect to which a Manager has investment discretion is reported by another Manager (or Managers), check the box for Report Type 13F COMBINATION REPORT, include (on the Cover Page) the List of Other Managers Reporting for this Manager, and include both the Summary Page and the Information Table.

Summary Page:

7. Include on the Summary Page the Report Summary, containing the Number of Other Included Managers, the Information Table Entry Total and the Information Table Value Total.

a. Enter as the Number of Other Included Managers the total number of other Managers listed in the List of Other Included Managers on the Summary Page, not counting the Manager filing this report. See Special Instruction 8. If none, enter the number zero (0).

b. Enter as the Information Table Entry Total the total number of line entries providing holdings information included in the Information Table.

c. Enter as the Information Table Value Total the aggregate fair market value of all holdings reported in this report, i.e., the total for Column 4 (Fair Market Value) of all line entries in the Information Table. The Manager must express this total as a rounded figure, corresponding to the individual Column 4 entries in the Information Table. See Special Instruction 9.

8. Include on the Summary Page the List of Other Included Managers. Use the title, column headings and format provided.

a. If this Form 13F report does not report the holdings of any Manager other than the Manager filing this report, enter the word NONE under the title and omit the column headings and list entries.

b. If this Form 13F report reports the holdings of one or more Managers other than the Manager filing this report, enter in the List of Other Included Managers all such Managers together with their respective Form 13F file numbers, if known. (The Form 13F file numbers are assigned to Managers when they file their first Form 13F.) Assign a number to each Manager in the List of Other Included Managers, and present the list in sequential order. The numbers need not be consecutive. The List of Other Managers must include all other Managers identified in Column 7 of the Information Table. Do not include the Manager filing this report.

Information Table:

9. In determining fair market value, use the value at the close of trading on the last trading day of the calendar year or quarter, as appropriate. Enter values rounded to the nearest one thousand dollars (with 000 omitted).

10. A Manager may omit holdings otherwise reportable if the Manager holds, on the period end date, fewer than 10,000 shares (or less than $200,000 principal amount in the case of convertible debt securities) and less than $200,000 aggregate fair market value (and option holdings to purchase only such amounts).

11. A Manager must report holdings of options only if the options themselves are Section 13(f) securities. For purposes of the $100,000,000 reporting threshold, the Manager should consider only the value of such options, not the value of the

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underlying shares. The Manager must give the entries in Columns 1 through 5 and in Columns 7 and 8 of the Information Table, however, in terms of the securities underlying the options, not the options themselves. The Manager must answer Column 6 in terms of the discretion to exercise the option. The Manager must make a separate segregation in respect of securities underlying options for entries for each of the columns, coupled with a designation PUT or CALL following such segregated entries in Column 5, referring to securities subject respectively to put and call options. A Manager is not required to provide an entry in Column 8 for securities subject to reported call options.

12. Furnish the Information Table using the table title, column headings and format provided. Provide column headings once at the beginning of the Information Table; repetition of column headings on subsequent pages is not required. Present the table in accordance with the column instructions provided in Special Instructions 12.b.i through 12.b.viii. Do not include any additional information in the Information Table. Begin the Information Table on a new page; do not include any portion of the Information Table on either the Cover Page or the Summary Page.

a. In entering information in Columns 4 through 8 of the Information Table, list securities of the same issuer and class with respect to which the Manager exercises sole investment discretion separately from those with respect to which investment discretion is shared. Special Instruction 12.b.vi for Column 6 describes in detail how to report shared investment discretion.

b. Instructions for each column in the Information Table:

i. Column 1. Name of Issuer. Enter in Column 1 the name of the issuer for each class of security reported as it appears in the current official list of Section 13(f) Securities published by the Commission in accordance with rule 13f-1(c) (the 13F List). Reasonable abbreviations are permitted.

ii. Column 2. Title of Class. Enter in Column 2 the title of the class of the security reported as it appears in the 13F List. Reasonable abbreviations are permitted.

iii. Column 3. CUSIP Number. Enter in Column 3 the nine (9) digit CUSIP number of the security.

iv. Column 4. Market Value. Enter in Column 4 the market value of the holding of the particular class of security as prescribed by Special Instruction 9.

v. Column 5. Amount and Type of Security. Enter in Column 5 the total number of shares of the class of security or the principal amount of such class. Use the abbreviation SH to designate shares and PRN to designate principal amount. If the holdings being reported are put or call options, enter the designation PUT or CALL, as appropriate.

vi. Column 6. Investment Discretion. Segregate the holdings of securities of a class according to the nature of the investment discretion held by the Manager. Designate investment discretion as sole (SOLE); shared-defined (DEFINED); or shared-other (OTHER), as described below:

(A) Sole. Designate as sole securities over which the Manager exercised sole investment discretion. Report sole securities on one line. Enter the word SOLE in Column 6.

(B) Shared-Defined. If investment discretion is shared with controlling and controlled companies (such as bank holding companies and their subsidiaries); investment advisers and investment companies advised by those advisers; or insurance companies and their separate accounts, then designate investment discretion as shared-defined (DEFINED).

For each holding of DEFINED securities, segregate the securities into two categories: those securities over which investment discretion is shared with another Manager or Managers on whose behalf this Form 13F report is being filed, and those securities over which investment discretion is shared with any other person, other than a Manager on whose behalf this Form 13F report is being filed.

Enter each of the two segregations of DEFINED securities holdings on a separate line, and enter the designation DEFINED in Column 6. See Special Instruction vii for Column 7.

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(C) Shared-Other. Designate as shared-other securities (OTHER) those over which investment discretion is shared in a manner other than that described in Special Instruction (B) above.

For each holding of OTHER securities, segregate the securities into two categories: those securities over which investment discretion is shared with another Manager or Managers on whose behalf this Form 13F report is being filed, and those securities over which investment discretion is shared with any other person, other than a Manager on whose behalf this Form 13F report is being filed.

Enter each segregation of OTHER securities holdings on a separate line, and enter the designation OTHER in Column 6. See Special Instruction vii for Column 7.

NOTE: A Manager is deemed to share discretion with respect to all accounts over which any person under its control exercises discretion. A Manager of an institutional account, such as a pension fund or investment company, is not deemed to share discretion with the institution unless the institution actually participated in the investment decision-making.

vii. Column 7. Other Managers. Identify each other Manager on whose behalf this Form 13F report is being filed with whom investment discretion is shared as to any reported holding by entering in this column the number assigned to the Manager in the List of Other Included Managers.

Enter this number in Column 7 opposite the segregated entries in Columns 4, 5 and 8 (and the relevant indication of shared discretion set forth in Column 6) as required by the preceding special instruction. Enter no other names or numbers in Column 7.

A Manager must report the conditions of sharing discretion with other Managers consistently for all holdings reported on a single line.

viii. Column 8. Voting Authority. Enter the number of shares for which the Manager exercises sole, shared, or no voting authority (none) in this column, as appropriate.

The Commission deems a Manager exercising sole voting authority over specified routine matters, and no authority to vote in non-routine matters, for purposes of this Form 13F report to have no voting authority. Non-routine matters include a contested election of directors, a merger, a sale of substantially all the assets, a change in the articles of incorporation affecting the rights of shareholders, and a change in fundamental investment policy; routine matters include selection of an accountant, uncontested election of directors, and approval of an annual report.

If voting authority is shared only in a manner similar to a sharing of investment discretion which would call for a response of shared-defined (DEFINED) under Column 6, a Manager should report voting authority as sole under subdivision (a) of Column 8, even though the Manager may be deemed to share investment discretion with that person under Special Instruction 12.b.vi.

13. Preparation of the electronic filing:

a. No line on the Cover Page or the Summary Page may exceed 80 characters in length. See rule 305 of Regulation S-T [17 CFR 232.305]

b. No line in the Form 13F Information Table may exceed 132 characters in length. See rule 305 of Regulation S-T [17 CFR 232.305].

c. If the Form 13F Report Type is 13F HOLDINGS REPORT or 13F COMBINATION REPORT, then place one EDGAR tag at the

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