Fund of hedge funds

(1) Funds of hedge funds are AIF that, subject to the rule in subsection (2), invest in units or shares of target funds. Target funds are hedge funds under section 283, or EU AIF or foreign AIF whose investment policy is comparable to the requirements of section 283(1). Leverage, other than borrowing under section 199, and short sales, may not be carried out for funds of hedge funds.
(2) The AIF capital management company may invest, for the account of a fund of hedge funds, only up to 49 percent of the value of the fund of hedge funds in
1. bank balances,
2. money market instruments, and
3. units in investment funds within the meaning of section 196 that may invest exclusively in bank balances and money market instruments, and units in corresponding EU AIF or foreign AIF. Forward currency contracts may be sold, and put options on currencies or on forward currency contracts denominated in the same foreign currency may be acquired, only for the purpose of hedging the exchange-rate risk of assets held in a foreign currency.
(3) The AIF capital management company may acquire, for the account of a fund of hedge funds, foreign target funds only where their assets are held in custody by a depositary or a prime broker satisfying the requirements of section 85(4), point 2.
(4) The AIF capital management company may not invest more than 20 percent of the value of a fund of hedge funds in a single target fund. It may not invest in more than two target funds from the same issuer or fund manager, and may not invest in target funds that themselves invest their funds in other target funds. The AIF capital management company may not invest in foreign target funds from States that do not cooperate in combating money laundering within the meaning of international agreements. Funds of hedge funds may also acquire all units or shares issued of a target fund.
(5) AIF capital management companies managing funds of hedge funds must ensure that they have available to them all information necessary for the investment decision concerning the target funds in which they intend to invest, at least, however,
1. the most recent annual and, where applicable, half-yearly report,
2. the investment conditions and sales prospectuses or equivalent documents,
3. information on the organisation, management, investment policy, risk management, and the depositary or comparable entities,
4. particulars of investment restrictions, liquidity, the level of leverage, and the carrying out of short sales.
(6) AIF capital management companies must continuously monitor the target funds in which they invest with regard to compliance with investment strategies and risks, and must regularly have generally recognised risk indicators submitted to them. The method by which the risk indicator is calculated must be stated and explained to the AIF capital management company by the respective target fund. The depositary of the target funds must submit a confirmation of the value of the target fund.