![]() An asset manager who provides services to a hedge fund or a private equity fund through a general partner entity and an investment manager may need to combine the general partner and investment management contracts because the contracts will likely have been negotiated together with a single commercial objective. If an asset manager enters into two or more contracts with the same customer (or related parties) at or near the same time, ASU 2014-09 requires the contracts be combined and accounted for as a single contract in certain circumstances. These characteristics typically are noted in a private fund, like a private equity or hedge fund, and, therefore, the customer is generally the investor. ![]() The fund has a small number of unrelated investors.The asset manager negotiates the management contract and fees with individual investors.Fees are negotiated individually with investors.The fund is governed by investors who can terminate the manager directly.Indicators that the customer is the fund investor include: These characteristics typically are noted in a mutual fund, and, therefore, the customer is generally the fund. The fund has a large number of unrelated investors.The asset manager negotiates the management fees with the fund as part of the offering document or with its governing body.Consistent fees are charged for each class of investor.The fund is governed by a board of directors.Indicators that the customer is the fund for revenue recognition purposes include: The conclusion as to who is the customer can affect the accounting for items such as fees from front-end sales loads and the costs of obtaining the contract.ĭepending on the circumstances, an asset manager’s customer could be a fund or an investor. ![]() In addition to identifying contracts, asset managers will need to identify their customer under the contract. Step 1: Identifying contracts with a customerĪny arrangement with a customer (for example, limited partnership agreement, management agreement, or fund prospectus) that creates enforceable rights and obligations will generally represent a contract under the standard. Under ASU 2014-09, this will generally not be the case. Under the previous rules, companies sometimes could recognize performance-based fees before they actually were realized.
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