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Vedder Thinking | Articles SEC Staff Issues ADI Regarding Risk Disclosures for Registered Funds Investing in Emerging Markets


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On December 14, 2020, the staff of the SEC’s Division of Investment Management issued guidance, in the form of an Accounting and Disclosure Information (ADI), regarding the adequacy of the risks disclosed by registered funds with significant exposure to emerging markets. In light of registered funds’ increased exposure to emerging markets, the ADI highlights the staff’s ongoing review of emerging markets risk disclosures and the importance of tailored communication to investors.

A few notable factors from the ADI for funds to consider when drafting their emerging markets risk disclosures are as follows:

  • Foreign Market Risks. Funds should consider the particular risks related to the emerging markets in which they invest and tailor disclosures accordingly. In drafting risk disclosure, the staff states that funds should consider factors such as lack of liquidity, concerns about market manipulation, limited reliable access to capital, political risks and foreign investment structures.
  • Impact of Regulation and Financial Reporting Standards. Funds should consider whether and to what extent local regulatory, accounting, auditing and financial reporting and recordkeeping standards in emerging markets may limit an adviser’s ability to evaluate investments or affect fund performance.
  • Limitations on Shareholder Rights. Funds also should consider any limitations on their rights and remedies against portfolio companies.
  • Concerns for Index Funds. Funds tracking indices with significant exposure to emerging markets should consider the reliability of an index provider’s information and evaluate any concerns regarding the diligence process used to gather data.
  • Restrictions on PCAOB Audits. Unlike U.S.-listed issuers, issuers listed in certain emerging markets may not be required to comply with Public Company Accounting Oversight Board (PCAOB) audit requirements. Funds should consider that certain jurisdictions do not allow the PCAOB sufficient access to inspect public audit firms or other audit materials. Accordingly, funds should carefully assess the regulatory framework in place in the emerging markets in which they invest and reflect material concerns in risk disclosures.

The ADI is available here.


John S. Marten


Nathaniel Segal


Jacob C. Tiedt