The structure of crypto-asset investment funds are driven by investment strategy goals, regulatory requirements, and tax considerations. The fund’s entity structure and allocation provisions aim to create efficiencies for fund managers and investors alike. For digital asset funds anticipating only US taxpayers, the fund vehicle is generally structured as a pass-through vehicle taxed as a partnership, either as a limited partnership or a limited liability company. However, as noted below, some crypto asset funds elect to trade through an offshore master-feeder or mini-master structure, regardless of whether the fund anticipates offshore investors.
The CFTC treats certain digital assets as commodities, including virtual payment tokens, utility tokens, and others under Section 1a(9) of the Commodities Act of 1936. CFTC regulated assets interests include: futures contracts, options on futures contracts, and swaps, including foreign exchange transactions. The CFTC has taken the position that virtual payment tokens, such as Bitcoin, are not considered currency because it is not accepted as legal tender in any jurisdiction.
Compared with the SEC, the CFTC has proven less of an obstacle for digital asset fund managers. CFTC commissioners have publicly encouraged forbearance and regulatory expansion to encourage the further development of digital asset innovation, including adding support to discussions calling for the creation of a self-regulatory organization to govern virtual commodities.
There are important distinctions between the scope of CFTC regulation of investment fund managers versus the SEC’s regulation of investment advisers. Unlike the SEC, which imposes adviser registration based on the inclusion of securities assets with the manager’s portfolio, the CFTC requires registration only from advisers that invest in commodities and other qualifying instruments using certain derivative strategies and leverage use.
On December 14, 2018, in anticipation of the IRS hearing for the Qualified Opportunity Zone (the “QOZ”) legislation, our firm hosted the Opportunity Zone Real Estate Fund Workshop at Columbia University’s Faculty House.
As is the case with investment funds in general, real estate funds are trending toward greater levels of specialization. Specialization may be by asset class, strategy or both. Examples of asset class-specific firms include: office, retail, medical, industrial, agricultural, storage, hospitality, etc. Real estate fund strategies can be loosely categorized into one or more of the following groups: