Kpmg's Investment Fund Description: A Comprehensive Guide

KPMG offers a range of services to help investment funds navigate the complex world of finance and make strategic decisions. Their services include providing guidance on financial statements, disclosures, and regulatory compliance, as well as assisting with tax, audit, and investment strategy. They have a multi-disciplinary approach, leveraging their industry knowledge and innovative technologies to help investment funds meet challenges and capitalise on opportunities. KPMG's clients include hedge funds, private equity funds, mutual funds, and exchange-traded funds, among others. They also provide support for investment funds facing climate-related risks and the transition to a low-carbon economy.

IFRS Accounting Standards

The IFRS accounting standard is designed to promote consistency and comparability in the financial reporting of companies worldwide, including public, private, and non-profit organisations. The adoption of IFRS is intended to improve transparency, streamline reporting, and foster a unified understanding of financial statements.

Despite its benefits, companies may encounter challenges during the IFRS implementation phase, such as one-time transition costs, increased demands for professional judgment, and the impact of global economic fluctuations. KPMG provides tailored support in transactions, IFRS implementation, and enhancing stakeholder communication to optimise reporting practices.

KPMG's Accounting Advisory Services Team offers assistance in transitioning to IFRS, integrating new businesses into existing IFRS consolidation, and preparing financial statements for investment funds. They also help ensure compliance with the latest IFRS standards, address complex ad-hoc IFRS accounting issues, and provide IFRS training.

KPMG has published guides to help companies prepare financial statements in accordance with IFRS Accounting Standards. These guides illustrate one possible format and are based on a fictitious tax-exempt, open-ended, single-fund investment company that is not a first-time adopter of IFRS. The 2024 edition includes new disclosures related to the Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2).

KPMG also offers illustrative financial statements for hedge funds and private equity funds, which provide a wide range of sample U.S. GAAP financial statements for private funds, including structures such as domestic, offshore, master/feeder, and fund of funds. These statements include enhancements such as the inclusion of digital assets as an asset class and disclosures related to ASU 2022-03.

Climate change and financial reporting

Climate change is having an impact on investment funds, with all investment funds facing climate-related risks and opportunities. These funds are making strategic decisions in response to these challenges, including their transition to a low-carbon economy. Climate change is a key consideration for financial reporting, with investors and regulators needing to understand how climate-related risks and opportunities are affecting and will continue to affect a company's financial position and performance.

KPMG's 'Clear on Climate Reporting' hub provides FAQs to help companies identify the potential financial statement impacts of climate change on their business. The hub also includes blogs, podcasts, and videos that explore the issues in more depth, including by sector.

The International Sustainability Standards Board (ISSB) has published the first two IFRS® Sustainability Disclosure Standards, which are designed to meet the needs of all organisations, providing investors with globally comparable information. These standards are part of the IFRS Foundation's efforts to put sustainability reporting on equal footing with financial reporting. The ISSB will develop baseline standards, with a building blocks approach, allowing for supplemental standards to be set by national and regional jurisdictions.

In Australia, the first globally-aligned sustainability reporting standards were finalised in September 2024, for application from 1 January 2025. These standards include the AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information and AASB S2 Climate-related Disclosures.

KPMG also offers a range of services related to sustainability and climate change reporting in financial statements, including the Climate IQ - Climate risk reporting tool and Sustainability Strategy & Reporting.

Exchange-traded funds (ETFs)

KPMG is a leading service provider in Ireland for ETFs, offering audit, tax, and advisory services. Their team of experienced professionals can offer key insights and utilise cutting-edge technology to support clients with tailored services as their business grows. This includes guidance on initial structure and setup, regulatory compliance, tax treaty access, withholding tax rebate claims, advice on sustainability disclosures, and audit/assurance.

The regulatory and compliance landscape for ETFs is becoming increasingly complex, with the pace of regulatory change driven by the harmonisation and sustainability agenda across Ireland and the EU. KPMG's market-leading expert team has developed robust regulatory frameworks to address these challenges, covering governance, conduct, ESG, and regulatory reporting.

KPMG also offers a tailored response for their ETF clients, collaborating with other service providers to offer a streamlined, high-quality audit that leverages technology to deliver value in a cost-effective manner. Managing tax issues is crucial for ETFs, and KPMG's tax practice advises on the full spectrum of tax issues arising across the global markets.

Business development companies (BDCs)

BDCs are typically listed on national exchanges, providing investors with liquidity and transparency. They are usually publicly traded and open to retail investors, although some are non-traded BDCs. The U.S. Congress created BDCs in 1980 to fuel job growth and assist emerging U.S. businesses in raising funds.

BDCs can be registered as Regulated Investment Companies (RICs), giving investors a tax advantage. RICs must distribute 90% of their income to investors, allowing the corporate entity to be exempt from federal taxes. BDCs generally offer higher dividend yields than other common stocks due to their tax structure.

BDC investments carry more risk due to their potential for high yields. They are sensitive to interest rate spikes, have illiquid and opaque holdings, and may charge high management fees. The investments made by BDCs can be in the form of debt or equity. Examples of debt investments include senior secured debt, subordinated debt, or unsecured debt. Equity investments can be in the form of preferred or common stock.

BDCs are required to invest at least 70% of their assets in private or public U.S. firms with market values of less than $250 million. They must also provide managerial assistance to the companies they invest in. BDCs can use different financial instruments to provide capital, but they typically issue loans or purchase stocks or convertible securities from these companies.

Common and collective investment funds (CIFs)

A common and collective investment fund (CIF) is a trust that pools assets from multiple clients and is held by a bank or trust company. The bank acts as a fiduciary for the CIF and holds the legal title to the fund's assets. CIFs are funds not regulated by the Securities Exchange Commission (SEC) or the Investment Act of 1940 but operate under the regulatory authority of the Office of the Comptroller of the Currency (OCC).

The primary objective of a CIF is to lower costs through economies of scale, combining profit-sharing funds and pensions. The pooled funds are grouped into a master trust account, with the bank or trust company acting as a trustee or executor. CIFs are specifically designed by banks to enhance their effective investment management by gathering assets from various accounts into one fund that is directed with a chosen investment strategy and objective.

There are two types of CIFs: A1 funds, where assets are grouped for investment or reinvestment, and A2 funds, where assets are grouped for retirement, profit-sharing, stock bonus, or other entities exempt from federal income tax. CIFs are generally available to individuals through employer-sponsored retirement plans, pension plans, and insurance companies.

While CIFs are similar in structure to mutual funds, they are unregistered investment vehicles, more comparable to hedge funds. CIFs also differ from mutual funds in that they have lower operating costs, are offered only by banks for retirement plans, and are not available to the general public.

Frequently asked questions