FRB Issues Guidance Concerning Volcker Rule "Illiquid Funds" Extension Requests

The Board of Governors of the Federal Reserve System ("FRB") provided guidance as the process to be used by banking entities seeking a five-year extension to continue to retain investments in a narrow class of covered funds that qualify as "illiquid funds."  The guidance supplements regulations issued by the FRB in 2011 which defined "illiquid funds" and set forth initial criteria for obtaining such an extension.

An illiquid fund is defined as a fund that is "principally invested" in illiquid assets and "holds itself out as employing a strategy to invest principally in illiquid assets," as of May 1, 2010.  The FRB is authorized under the Dodd-Frank Act to provide up to an additional five years for banking entities to conform existing investments in certain illiquid funds. Under the existing regulations, the banking entity must have had a "contractual obligation" to invest in the fund, or to retain the investment, as of May 1, 2010.