# CFTC Letter No. 17-19: The Division of Swap Dealer and Intermediary Oversight (DSIO) granted no-action relief from commodity pool operator (CPO) registration to two entities operating collective investment vehicles to manage the assets belo..

> Federal · Agency guidance · In force

URL: https://www.frixlaw.com/law-library/statutes/CFTC_L17_19

## Section

- **Citation:** CFTC Letter No. 17-19
- **Heading:** The Division of Swap Dealer and Intermediary Oversight (DSIO) granted no-action relief from commodity pool operator (CPO) registration to two entities operating collective investment vehicles to manage the assets belo..
- **Jurisdiction:** Federal
- **Kind:** Agency guidance
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** CFTC Staff Letters (2008-present) / The Division of Swap Dealer and Intermediary Oversight (DSIO) granted no-action relief from commodity pool operator (CPO) registration to two entities operating collective investment vehicles to manage the assets belo...

## Text

Summary: The Division of Swap Dealer and Intermediary Oversight (DSIO) granted no-action relief from commodity pool operator (CPO) registration to two entities operating collective investment vehicles to manage the assets belonging to a university, its campuses, affiliated schools, and other supporting organizations, subject to certain conditions outlined in the letter.

Division of Swap Dealer and

Eileen T. Flaherty
Intermediary Oversight

Director

U.S. COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre
1155 21st Street, NW, Washington, DC 20581
Telephone: (202) 418-6700
Facsimile: (202) 418-5528
eflaherty@cftc.gov

CFTC Letter No. 17-19
No-Action
April 4, 2017
Division of Swap Dealer and Intermediary Oversight

RE:
Request for Relief from Commodity Pool Operator Registration for the University
“A” Management Company and the Board of Directors of the “Z” Fund

Dear:

This responds to your letter dated November 14, 2014, and ongoing and recent
correspondence (the “Correspondence”), to the Division of Swap Dealer and Intermediary
Oversight (“Division”) of the Commodity Futures Trading Commission (“Commission”). In the
Correspondence, you request no-action relief from commodity pool operator (“CPO”)
registration required by Section 4m(1) of the Commodity Exchange Act (“CEA”)1 on behalf of
University “A” Management Company and the Board of Directors of the “Z” Fund (“‘Z’ Fund
Directors”), with respect to several funds operated by them to manage the endowment and other
assets belonging to the University “A” at Campus “B” (“Campus “B””), as well as other
campuses of University “A” (“University”), their affiliates, and supporting organizations.2
Specifically, the Correspondence requests relief from CPO registration for (1) University “A”
Management Company, with respect to its activities operating and managing the “X” Fund and
the “Y” Fund; and (2) the “Z” Fund Directors, with respect to their activities operating the “X”
Fund
well as other
campuses of University “A” (“University”), their affiliates, and supporting organizations.2
Specifically, the Correspondence requests relief from CPO registration for (1) University “A”
Management Company, with respect to its activities operating and managing the “X” Fund and
the “Y” Fund; and (2) the “Z” Fund Directors, with respect to their activities operating the “X”
Fund and the “Z” Fund (collectively, the “Funds”).

Background

Based on the Correspondence, we understand the relevant facts to be as follows.
University “A” is a political subdivision of the State of “F”, whose mission is to advance higher
education in that state. Campus “B” was chartered by the “F” State Legislature in [year]. The
University has since expanded from its founding campus at Campus “B” to include [xx]
constituent educational institutions (“Campuses”) as part of the consolidated University system.

1 7 U.S.C. 6m(1).
2 Because this response grants your request for no-action relief from CPO registration for University “A”
Management Company and the “Z” Fund Directors, the Division need not separately address your alternative
requests for similar exemptive or interpretative relief.

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The “X” Fund

The “X” Fund is a limited liability company tax-exempt under the U.S. Internal Revenue
Code of 1986 as amended (“IRC”)3 that holds and invests assets collectively on behalf of its
participants. The “X” Fund was established in 2003 to benefit Campus “B”, the University,
other Campuses of the University, and a limited type and number of their respective affiliates
Page 2

The “X” Fund

The “X” Fund is a limited liability company tax-exempt under the U.S. Internal Revenue
Code of 1986 as amended (“IRC”)3 that holds and invests assets collectively on behalf of its
participants. The “X” Fund was established in 2003 to benefit Campus “B”, the University,
other Campuses of the University, and a limited type and number of their respective affiliates.
The Correspondence describes the “X” Fund as a “fund-of-funds,” that “allows the University,
the Campuses, and certain of their affiliates to commingle their investment assets in order to
more cost-effectively invest and manage their investment assets, obtain better access to more
investment managers, achieve greater diversification in their portfolios, and realize higher
returns with lower risk than they could experience investing and managing their investment
assets separately.”4

The governing documents of the “X” Fund limit participants exclusively to “Eligible
Persons,” defined as (a) an entity that (i) is either a government or a tax-exempt organization
under the IRC, and (ii) is either the University, one of its Campuses, or an “affiliate” thereof,5 or
(b) is an entity, all of whose participants satisfy the foregoing criteria in (a). Additionally, an
entity that is a supporting organization of the University or a Campus must satisfy the criteria
specified in IRC Section 509(a)(3), in order to meet the “Affiliate” definition and be allowed to
participate in the “X” Fund. The Correspondence states that all participants in the “X” Fund
represent that they are “accredited investors,” as defined by the Securities and Exchange
Commission (“SEC”) in its Regulation D,6 and most of them are believed to be qualified eligible
persons (“QEPs”), pursuant to Commission Regulation 4.7(a).7

The Correspondence represents that participation in the “X” Fund is entirely voluntary,
and is decided by each participant’s governing body or persons
sent that they are “accredited investors,” as defined by the Securities and Exchange
Commission (“SEC”) in its Regulation D,6 and most of them are believed to be qualified eligible
persons (“QEPs”), pursuant to Commission Regulation 4.7(a).7

The Correspondence represents that participation in the “X” Fund is entirely voluntary,
and is decided by each participant’s governing body or persons. The controlling member of the
“X” Fund is the “Z” Fund, which is further discussed below. Other participants in the “X” Fund
include the University, some (but not all) of the Campuses, affiliated non-profit entities,

3 26 U.S.C. 1 et seq.
4 Correspondence, p. 2.
5 The “X” Fund’s governing documents define “Affiliate” as follows: “‘Affiliate’ means, with respect to any
Person, each other Person that directly, or indirectly through one or more intermediaries, owns, controls, or is
controlled by or under common control with, such Person. Additionally, an Affiliate of the University shall be
deemed to include any Person (i) that primarily supports The University or one of its constituent institutions, as
contemplated by Section 509(a)(3) of the Code, or (ii) a majority of whose board of trustees, directors or managers is
elected or appointed by the Board of Governors of The University, by the board of trustees of a constituent
institution of The University, or by individuals elected or appointed by such Board of Governors or such board of
trustees.” Correspondence, Annex III (emphasis added) (proper names redacted).
6 See 17 CFR 230.500-506; 17 CFR 230.501(a) (defining “accredited investor”).
7 17 CFR 4.7(a).
lected or appointed by the Board of Governors of The University, by the board of trustees of a constituent
institution of The University, or by individuals elected or appointed by such Board of Governors or such board of
trustees.” Correspondence, Annex III (emphasis added) (proper names redacted).
6 See 17 CFR 230.500-506; 17 CFR 230.501(a) (defining “accredited investor”).
7 17 CFR 4.7(a).

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foundations and statutory endowments that support the University or one of its Campuses
(including University “A” Management Company), and certain entities affiliated with the
University and its Campuses, such as the University hospital system.

The “Z” Fund

The “Z” Fund is a tax-exempt corporation that invests the assets of entities that support
Campus “B”, including the Campus “B” Endowment Fund, the Campus “B” Foundation, Inc.,
and other entities organized and operated primarily to support Campus “B”. The “Z” Fund
invests directly into the “X” Fund, and currently invests all of its investible assets therein. All of
the “Z” Fund’s management and operational decisions are made by the “Z” Fund Directors.

The “Z” Fund was created in 1995, in order to “more efficiently and effectively invest
and manage (utilizing a long-term, endowment-style investment model) the assets of [Campus
“B”]’s statutory and private endowments and certain of the numerous organizations that support
[Campus “B”] and its various schools, departments, programs, and initiatives.”8 The “Z” Fund is
governed by the “Z” Fund Directors, the selection of which was then, and is still, controlled
directly or indirectly by Campus “B”.

From 1995 until 2002, the staff members responsible for managing the “Z” Fund were
employees of Campus “B”. Campus “B” formed University “A” Management Company in
December 2002 and transferred its investment management staff and responsibilities effective
January 1, 2003
he “Z” Fund Directors, the selection of which was then, and is still, controlled
directly or indirectly by Campus “B”.

From 1995 until 2002, the staff members responsible for managing the “Z” Fund were
employees of Campus “B”. Campus “B” formed University “A” Management Company in
December 2002 and transferred its investment management staff and responsibilities effective
January 1, 2003. The “Z” Fund and University “A” Management Company formed the “X”
Fund in 2003 to open investment management by University “A” Management Company to the
University, other Campuses of the University, and their endowments, foundations, and
supporting organizations. The “Z” Fund thereafter transferred all of its investible assets to the
“X” Fund.

The “Z” Fund, through the “Z” Fund Directors, retained all ultimate decision-making
authority with respect to the “X” Fund (including asset allocations), subject to the advice,
recommendations, implementation, and management of University “A” Management Company
(except to the extent delegated to the discretion of University “A” Management Company). The
other participants in the “X” Fund do not have any operational authority, except to withdraw or
increase their respective investments therein, subject to certain operating procedures.

Participation in the “Z” Fund is “currently limited exclusively by its governing
documents to charitable, non-profit foundations, associations, trusts, endowments, and funds that
are organized and operated primarily to support [Campus “B”].”9 Funds eligible for investment

8 Correspondence, p. 4.
9 Id.
bject to certain operating procedures.

Participation in the “Z” Fund is “currently limited exclusively by its governing
documents to charitable, non-profit foundations, associations, trusts, endowments, and funds that
are organized and operated primarily to support [Campus “B”].”9 Funds eligible for investment

8 Correspondence, p. 4.
9 Id.

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in the “Z” Fund include endowment funds and other assets that are suitable for a long-term
investment horizon. Participation in the “Z” Fund is entirely voluntary, and is decided by each
participant’s governing body or persons. Of the 27 existing participants in the “Z” Fund, 20 are
accredited investors, many of whom are also believed to be QEPs.

The Correspondence also states that 17 of the 27 current participants in the “Z” Fund are
classified by the University as “Associated Entities.”10 The University Policy Manual defines an
“Associated Entity,” as “any foundation, association, corporation, LLC, partnership or other non-
profit entity that was established by the officers of the University, that is controlled by the
University, that raises funds in the name of the University, that has a primary purpose of
providing services or conducting activities in furtherance of the University’s mission pursuant to
an agreement with the University, or that has a tax exempt status that is based on being a
support[ing] organization of the University.”11 An Associated Entity must formally agree to
abide by the policies and regulations established by the University and must provide in its
governing documents that, upon dissolution of the Associated Entity, all of its assets (except to
the extent otherwise restricted by donors) will revert to the University, a Campus, or another
Associated Entity approved by the University or Campus.12 The Correspondence states that all
such Associated Entities c
the policies and regulations established by the University and must provide in its
governing documents that, upon dissolution of the Associated Entity, all of its assets (except to
the extent otherwise restricted by donors) will revert to the University, a Campus, or another
Associated Entity approved by the University or Campus.12 The Correspondence states that all
such Associated Entities currently participating in the “Z” Fund have entered into written
agreements with Campus “B” agreeing to these and other substantive requirements, and have
provided for the reversion of their assets upon dissolution to Campus “B” or another Associated
Entity supporting Campus “B”.13 Based on these agreements and the reversion of assets
requirement, the Correspondence asserts that, “it is clear that any organization entering into an
agreement with [Campus “B”] to be an Associated Entity is an organization that exists and
operates primarily to support, and thereby is closely associated with, [Campus “B”].”14

The Correspondence requests that all existing participants, including the four who are
neither accredited investors nor Associated Entities, in the “Z” Fund be permitted to continue
their participation with respect to their existing and future investments in the “Z” Fund
(“Grandfathered Participants”). The Correspondence also proposes new criteria applicable to
any new participant wishing to invest in the “Z” Fund: any new participant would be required to
be either (1) a tax-exempt entity that is a supporting organization of Campus “B”, pursuant to

10 Three of the seven entities that are not accredited investors are Associated Entities, leaving four participants in the
“Z” Fund that are neither accredited investors nor Associated Entities.
11 Correspondence, Annex VII.
12 Id. at 5.
13 Id.
14 Id
either (1) a tax-exempt entity that is a supporting organization of Campus “B”, pursuant to

10 Three of the seven entities that are not accredited investors are Associated Entities, leaving four participants in the
“Z” Fund that are neither accredited investors nor Associated Entities.
11 Correspondence, Annex VII.
12 Id. at 5.
13 Id.
14 Id. The Correspondence further points out that, “[i]t is equally clear that the participants that are not Associated
Entities are organizations that exist and operate primarily to support, and thereby are closely associated with,
[Campus “B”] and its public educational mission… The relationships between most of the participants in the [“Z”]
Fund are so closely and significantly associated with [Campus “B”] that they are referenced in the [Campus “B”]
Comprehensive Annual Financial Report.” Id.

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IRC Section 509(a)(3);15 or (2) a foundation, association, corporation, limited liability company,
partnership, or other non-profit entity that is both an “Associated Entity” as contemplated by the
University Policy Manual (discussed above), and (a) is established by officers of Campus “B”,
(b) is controlled by Campus “B”, (c) raises funds in the name of Campus “B”, or (d) has a
primary purpose of providing services or conducting activities in furtherance of the mission of
Campus “B”, pursuant to an agreement with Campus “B”.16

The “Y” Fund
The “Y” Fund is a limited liability company taxed as a partnership under the IRC that
holds and invests assets collectively on behalf of its participants. The “Y” Fund was established
in May 2013 and began operations in January 2014
ry purpose of providing services or conducting activities in furtherance of the mission of
Campus “B”, pursuant to an agreement with Campus “B”.16

The “Y” Fund
The “Y” Fund is a limited liability company taxed as a partnership under the IRC that
holds and invests assets collectively on behalf of its participants. The “Y” Fund was established
in May 2013 and began operations in January 2014. It contains assets constituting “mostly
general operating funds and reserves of its participants,” and was “established to benefit
[Campus “B”], the University, other Campuses, and a limited type and number of their
respective affiliates by enabling its participants to make medium-term horizon investments
(generally, a 3-5 year time period) in high quality, short duration money market and other fixed
income investments.”17 University “A” Management Company serves as the manager of the “Y”
Fund, and subject to the terms of the constituent documents, has the authority to make
investment decisions on behalf of that fund. Campus “B” is the controlling member of the “Y”
Fund.

Participation in the “Y” Fund is limited to any entity that (i) is either a government entity
or a tax-exempt organization, and that (ii) is either the University, one of its Campuses, or an
Affiliate thereof. As with the “X” Fund, the definition of “Affiliate”18 includes entities deemed
to be supporting organizations, pursuant to IRC Section 509(a)(3).19 Participation in the “Y”
Fund is voluntary and decided by each participant’s governing body or persons. All participants
in the “Y” Fund represent that they are accredited investors, and all are believed to be QEPs.

University “A” Management Company

The Correspondence makes the following representations with respect to University “A”
Management Company, and its activities managing and operating the “X” Fund and the “Y”
Fund
ary and decided by each participant’s governing body or persons. All participants
in the “Y” Fund represent that they are accredited investors, and all are believed to be QEPs.

University “A” Management Company

The Correspondence makes the following representations with respect to University “A”
Management Company, and its activities managing and operating the “X” Fund and the “Y”
Fund. University “A” Management Company is a tax-exempt corporation that is organized and
operated to support Campus “B” and provides investment management services to the
University, Campus “B”, the “X” Fund, the “Y” Fund, and the “Z” Fund. University “A”

15 26 U.S.C. 509(a)(3).
16 Id. at 4 and Annex VI.
17 Correspondence, p. 6.
18 See note 5 above. The “Y” Fund and the “X” Fund use the same definition for “Affiliate” in their corresponding
participant eligibility requirements.
19 26 U.S.C. 509(a)(3).

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Management Company is subject to the Investment Advisers Act (“IAA”), though it is exempt
from registration as an investment adviser pursuant to the charitable adviser exemption in IAA
Section 203(b)(4).20

University “A” Management Company manages, for compensation, the daily operations
and investments of the “X” Fund and the “Y” Fund, pursuant to governing and contractual
documents approved and periodically reviewed by the “Z” Fund Directors (with respect to the
“X” Fund) and by Campus “B” (with respect to the “X” Fund and the “Y” Fund). University
“A” Management Company and the “Z” Fund are supporting organizations of Campus “B”, and
all members of their respective Boards of Directors are appointed directly or indirectly by
Campus “B” or are senior officers of Campus “B”
proved and periodically reviewed by the “Z” Fund Directors (with respect to the
“X” Fund) and by Campus “B” (with respect to the “X” Fund and the “Y” Fund). University
“A” Management Company and the “Z” Fund are supporting organizations of Campus “B”, and
all members of their respective Boards of Directors are appointed directly or indirectly by
Campus “B” or are senior officers of Campus “B”. University “A” Management Company does
not market or solicit participants, but on an unsolicited basis, does meet and correspond with
prospective eligible participants at their request to discuss the details of, and answer questions
about, University “A” Management Company, the “X” Fund, the “Z” Fund, and the “Y” Fund, as
applicable. University “A” Management Company has no other clients other than the “X” Fund,
the “Y” Fund, and Campus “B”, and is not otherwise required to register with the Commission.

The “Z” Fund Directors

The Correspondence makes the following representations with respect to the “Z” Fund
Directors (“Directors”) and their activities. All of the Directors are appointed, directly or
indirectly, by Campus “B” or are senior officers of Campus “B”. Some of the Directors also
serve on the Board of University “A” Management Company. With the exception of senior
officers of Campus “B” serving as ex officio members, the Directors serve on a voluntary and
part-time basis, and are not compensated for their service as Directors.21 The Correspondence
describes the Directors as “supporters of [Campus “B”], drawn from public, private, and
community interests and having (or having had) significant and high-level experience and full-
time employment and careers in higher education, finance, and various other industries.”22 In
their capacity as Directors, such persons do not advertise, conduct any marketing activity with
respect to, or otherwise solicit participants for, the “Z” Fund or the “X” Fund.23

The Correspondence explains the role and motive of the Directors as follows:

Th
nd high-level experience and full-
time employment and careers in higher education, finance, and various other industries.”22 In
their capacity as Directors, such persons do not advertise, conduct any marketing activity with
respect to, or otherwise solicit participants for, the “Z” Fund or the “X” Fund.23

The Correspondence explains the role and motive of the Directors as follows:

The Directors, other than senior employees of [Campus “B”], take their positions
on the Boards to provide a service to their alma mater, [Campus “B”]. The

20 Correspondence, p. 7; 15 U.S.C. 80b-3(b)(4).
21 The Correspondence notes that the reasonable out-of-pocket expenses incurred by the Directors in attending
meetings and performing their duties for the “Z” Fund Board may be paid or reimbursed. Correspondence, p. 7.
22 Id.
23 Id. at 8.

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Directors perform their services as dedicated alumni, friends, and donors, and
have no incentive whatsoever other than to do what is best for the University and
[Campus “B”] and advance their missions of higher public education. Lastly and
significantly, the Directors of the [“Z”] Fund serve in a volunteer capacity due to
their affiliation, loyalty, and dedication to [Campus “B”], and they are not
investors or participants in the [“X”] Fund or the [“Z”] Fund.24

The Correspondence further states that, “[the Directors] have no incentive or conflict
whatsoever to pursue any aim other than the best interests of the participants of the [“Z”] Fund
and the [“X”] Fund or to allow such funds to operate irresponsibly, at any risk to anyone, or in a
manner that could in any way damage [Campus “B”], the University, the Campuses, or their
supporting or associated organizations.”25

Existing Compliance Obligations and Oversight

The Correspondence further discusses, in detail, the compliance obligations already
rticipants of the [“Z”] Fund
and the [“X”] Fund or to allow such funds to operate irresponsibly, at any risk to anyone, or in a
manner that could in any way damage [Campus “B”], the University, the Campuses, or their
supporting or associated organizations.”25

Existing Compliance Obligations and Oversight

The Correspondence further discusses, in detail, the compliance obligations already
applicable to University “A” Management Company, the “Z” Fund Directors, and the Funds
themselves, and the system of oversight established by the University. In particular, the Division
finds the following details instructive:

 Participants in the Funds are provided with disclosure materials discussing the structure,
operation, investment terms, distribution and withdrawal policies, fees and costs, and
investment strategies and policies, including the Funds’ limited direct and/or indirect
exposure to the derivatives markets through commodity interests.
 The “X” Fund and the “Z” Fund provide monthly, quarterly, and annual reports of
investment results, as well as quarterly unaudited and annual audited financial statements
to each “Z” Fund Director and to each of the participants in the respective Funds. The
“Y” Fund provides monthly, quarterly, and annual reports of investment results and
annual audited financial statements to each participant. The financial statements
provided by each Fund are prepared in accordance with U.S. generally accepted
accounting principles and audited by an independent certified public accountant.
 The President of the University and the Chancellor of Campus “B” also receive audited
financial statements of the Funds, and the Funds’ balance sheets and income statements
are consolidated into the financial statements of Campus “B”, pursuant to Governmental
Accounting Standards Board pronouncements
y accepted
accounting principles and audited by an independent certified public accountant.
 The President of the University and the Chancellor of Campus “B” also receive audited
financial statements of the Funds, and the Funds’ balance sheets and income statements
are consolidated into the financial statements of Campus “B”, pursuant to Governmental
Accounting Standards Board pronouncements.
 In addition to the annual audits performed on the Funds, an independent certified public
accountant examines the “X” Fund and the “Z” Fund, their suitability of design, and the
operating effectiveness of their controls (“SOC Audits”). The SOC Audit is distributed

24 Id.
25 Id.

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to participants in all three Funds, is expected to be performed annually, and is reviewed,
along with all of the other audited financial statements of the Funds, by the Audit
Committees of University “A” Management Company and the “Z” Fund Directors with
the accountant.
 Each of the Funds and the University “A” Management Company is subject to oversight
by the Chancellor and Board of Trustees of Campus “B”, who in turn are overseen by the
University’s President and Board of Governors, the members of which are appointed by
the General Assembly of the State of “F”
ommittees of University “A” Management Company and the “Z” Fund Directors with
the accountant.
 Each of the Funds and the University “A” Management Company is subject to oversight
by the Chancellor and Board of Trustees of Campus “B”, who in turn are overseen by the
University’s President and Board of Governors, the members of which are appointed by
the General Assembly of the State of “F”.

The Correspondence states that the disclosures and reporting described above are driven
by: regulations of the Board of Governors of the University; contractual obligations in the legal
documents governing the Funds; requests and demands of the “Z” Fund Directors and the
Executive Committee of the Board of the “Z” Fund; requests and demands of the Fund
participants; and university, endowment, and industry best practices.26 In addition to the self-
imposed obligations above, the University “A” Management Company and each of the Funds are
subject to periodic audit by the Office of the Auditor of the State of “F”.

Investment Activities and the Need for Relief from CPO Registration

As stated in the Correspondence, the “Z” Fund invests directly into the “X” Fund, and
currently invests all of its investible assets therein. The Correspondence also describes the
investment activities of the “X” Fund as follows: “[t]he [“X”] Fund invests in a diverse array of
asset classes within investment funds, vehicles, and accounts sponsored and managed by third-
party investment managers, including private equity, real estate, venture capital, buyout, equity,
debt, securitization, and hedge investment funds, vehicles, and accounts, including ones in
specific industries (e.g., natural resources).”27 Some of these funds, vehicles, and accounts
already do, or may in the future, invest in commodity interests, and thus may constitute
commodity pools
hird-
party investment managers, including private equity, real estate, venture capital, buyout, equity,
debt, securitization, and hedge investment funds, vehicles, and accounts, including ones in
specific industries (e.g., natural resources).”27 Some of these funds, vehicles, and accounts
already do, or may in the future, invest in commodity interests, and thus may constitute
commodity pools. Additionally, the “X” Fund engages in a “de minimis amount of direct
investment in commodity interests for purposes of managing investment risk,” but the
Correspondence emphasizes that “[s]ignificant direct exposure to the commodities markets is
inconsistent with the endowment-style investing offered by the [“X”] Fund,” and “the primary
purpose for such direct investing is for specific risk management purposes.”28 Based on the
discussion of investment activities in the Correspondence and the fact that the “Z” Fund invests
all of its investible assets in the “X” Fund, both the “X” Fund and the “Z” Fund could be
considered commodity pools, and University “A” Management Company and the “Z” Fund
Directors, their CPOs.

26 Correspondence, p. 16-17.
27 Correspondence, p. 8.
28 Id. at 9.

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The Correspondence states that the “Y” Fund invests in funds, vehicles and accounts
sponsored by third-party investment managers using various investment approaches, some of
which may invest in commodity interests. It also invests a portion of its assets in the “X” Fund
for diversification purposes. Because it may, through either of these investment practices, invest
indirectly in commodity interests, the “Y” Fund could also be considered a commodity pool, and
University “A” Management Company, its CPO
stment managers using various investment approaches, some of
which may invest in commodity interests. It also invests a portion of its assets in the “X” Fund
for diversification purposes. Because it may, through either of these investment practices, invest
indirectly in commodity interests, the “Y” Fund could also be considered a commodity pool, and
University “A” Management Company, its CPO.

Analysis

Absent the relief provided herein, University “A” Management Company and the “Z”
Fund Directors could be required to register as CPOs with respect to their operational and
investment management activities for the Funds. The Division believes that granting University
“A” Management Company and the “Z” Fund Directors relief from CPO registration is
warranted, based on the facts presented by this request and subject to the specific conditions of
relief outlined below.

The Correspondence asserts that University “A” Management Company, the “Z” Fund
Directors, and the Funds share an aligned interest and common goal with the Fund participants,
who are, inter alia, the University, Campus “B”, the other Campuses, their Affiliates, and their
supporting organizations – that being the provision and furtherance of public higher education in
the State of “F”, and the prudent management of University assets to accomplish that goal.
Additionally, a unique feature of this structure is that Campus “B”, an organization who is itself
and whose affiliates, supporting organizations, and foundations are participants in the Funds, has
the power to appoint the Board of Directors of University “A” Management Company, as well as
the “Z” Fund Directors (in the event that these individuals are not already senior staff of Campus
“B”)
Additionally, a unique feature of this structure is that Campus “B”, an organization who is itself
and whose affiliates, supporting organizations, and foundations are participants in the Funds, has
the power to appoint the Board of Directors of University “A” Management Company, as well as
the “Z” Fund Directors (in the event that these individuals are not already senior staff of Campus
“B”). This fact, and others, is indicative of the control exerted by Fund participant(s) over the
management and operations of the possible CPOs, and is one of several factors that makes the
instant situation distinguishable from the typical relationship CPOs and commodity pools have
with their pool participants, and which CPO registration and the attendant compliance regime is
designed to address.

The Correspondence represents, however, that neither University “A” Management
Company nor the “Z” Fund Directors engage in marketing of the Funds to the public, and neither
of them have any other clients other than the Funds, and the University (or its affiliates).
Further, the realm of possible participants in each of the Funds is sufficiently limited by the Fund
participant eligibility requirements and the conditions of relief discussed in detail below, such
that any new participants in the Funds would be limited to entities or persons very closely linked
to the University, Campus “B”, or their affiliates, that share the aligned interests previously
discussed herein.
of possible participants in each of the Funds is sufficiently limited by the Fund
participant eligibility requirements and the conditions of relief discussed in detail below, such
that any new participants in the Funds would be limited to entities or persons very closely linked
to the University, Campus “B”, or their affiliates, that share the aligned interests previously
discussed herein.

RE: Relief for University “A” Management Company and the “Z” Fund Directors from
CPO Registration
Page 10

The conditions of relief, proposed by the Correspondence and accepted by the Division,
specifically alter the “Z” Fund’s participant eligibility requirements by limiting new participants
to tax-exempt entities that have such status by virtue of being supporting organizations of
Campus “B”, as contemplated by IRC Section 509(a)(3),29 or entities that are “Associated
Entities,” as defined by the University Policy Manual, and meet other requirements.30 The
Division believes these conditions appropriately clarify the meaning of “supporting
organization” and will sufficiently limit potential participants to entities very closely related to
Campus “B”. IRC Section 509(a) defines a “private foundation” as “a domestic or foreign
organization described in [IRC] section 501(c)(3) other than” the entities described in that
section’s paragraphs (a)(1)-(4).31 The Manual for the Internal Revenue Service explains that,
“IRC 509(a) thus divides organizations described in [and therefore tax-exempt under] IRC
501(c)(3) into two classes: A. private foundations, and B
(a) defines a “private foundation” as “a domestic or foreign
organization described in [IRC] section 501(c)(3) other than” the entities described in that
section’s paragraphs (a)(1)-(4).31 The Manual for the Internal Revenue Service explains that,
“IRC 509(a) thus divides organizations described in [and therefore tax-exempt under] IRC
501(c)(3) into two classes: A. private foundations, and B. organizations other than private
foundations (sometimes called ‘public charities’ by way of distinction…).”32 In particular, IRC
Section 509(a)(3) deems an entity, organized and operated in the following manner, a
“supporting organization” that is also considered a public charity:

(A) Is organized, and at all times thereafter is operated, exclusively for the benefit of, to
perform the functions of, or to carry out the purposes of one or more specified
organizations described in paragraph (1) or (2),
(B) Is ---
(i)
operated, supervised, or controlled by one or more organizations described
in paragraph (1) or (2),
(ii)
supervised or controlled in connection with one or more such
organizations, or
(iii)
operated in connection with one or more such organizations, and
(C) Is not controlled directly or indirectly by one or more disqualified persons (as defined
in section 4946) other than foundation managers and other than one or more
organizations in paragraph (1) or (2)[.]

The Division believes that limiting supporting organizations seeking to participate in the “Z”
Fund to those that are able to meet the standards of IRC Section 509(a)(3) is appropriate to
ensure that such organizations participating in the Funds have significant ties with Campus “B”,
derive their tax-exempt status from their support of and affiliation with Campus “B”, and thus,

29 26 U.S.C. 509(a)(3).
30 Correspondence, pp. 4-5, and Annex VI
to those that are able to meet the standards of IRC Section 509(a)(3) is appropriate to
ensure that such organizations participating in the Funds have significant ties with Campus “B”,
derive their tax-exempt status from their support of and affiliation with Campus “B”, and thus,

29 26 U.S.C. 509(a)(3).
30 Correspondence, pp. 4-5, and Annex VI. Prior to the granting of this relief, the “Z” Fund limited eligible
participants to, “[o]nly charitable, nonprofit foundations, associations, trusts, endowments, and funds that are
organized and operated primarily to support [Campus “B”] and that are approved by the Treasurer of the “Z” Fund.”
31 26 U.S.C. 509(a).
32 IRS Manual Section 7.26.1.1, “Introduction to Private Foundations,” available at
http://www.irs.gov/irm/part7/irm_07-026-001.html (internal citations omitted).

RE: Relief for University “A” Management Company and the “Z” Fund Directors from
CPO Registration
Page 11

share the same aligned interests and goals. Associated Entities are also appropriate participants
for the “Z” Fund by virtue of their detailed contractual obligations to Campus “B”, including the
automatic reversion of their assets in the event of dissolution to Campus “B” or another
Associated Entity thereof. With respect to the “X” Fund and the “Y” Fund, the Division need
not pose an additional, similar condition of relief because the participant eligibility requirements
have already been amended to include language restricting supporting organizations meeting the
“Affiliate” definition, and able to participate in those Funds, to those meeting the standard in
IRC Section 509(a)(3)
Entity thereof. With respect to the “X” Fund and the “Y” Fund, the Division need
not pose an additional, similar condition of relief because the participant eligibility requirements
have already been amended to include language restricting supporting organizations meeting the
“Affiliate” definition, and able to participate in those Funds, to those meeting the standard in
IRC Section 509(a)(3).

In addition to restrictions on Fund participant eligibility, the Correspondence discusses
multiple compliance obligations the Funds currently meet to respond to and fulfill the requests
and demands of the Board of Governors of the University, the “Z” Directors, and the Fund
participants; the Funds’ contractual obligations in their governing documents; and “university,
endowment, and industry best practices.”33 As discussed above, these include the provision of
detailed disclosure documents to participants prior to investment in the Funds; ongoing periodic
and annual reporting to Fund participants and University and state officials overseeing the
management of these assets; as well as audits of the Funds’ assets and SOC Audits conducted
annually by independent certified accountants, which are distributed to Fund participants and
entities or persons overseeing the Funds’ operations.

In CFTC Staff Letter 85-22 (the “85-22 Letter”),34 the Division of Trading and Markets,
one of the Division’s predecessors, granted no-action relief from CPO registration to a non-profit
membership corporation that provided investment management services to its members – a
variety of universities and colleges seeking assistance in managing their endowments
s overseeing the Funds’ operations.

In CFTC Staff Letter 85-22 (the “85-22 Letter”),34 the Division of Trading and Markets,
one of the Division’s predecessors, granted no-action relief from CPO registration to a non-profit
membership corporation that provided investment management services to its members – a
variety of universities and colleges seeking assistance in managing their endowments. Though
the instant request is factually distinguishable from that situation, the Division believes that
granting no-action relief in this context is nonetheless appropriate.35 In this case, the Fund
participants are all part of the public university system of the State of “F” that created and
continues to manage the Funds, and the possible CPOs, Funds, and participants share the same
goal of effectively managing assets belonging to the University, its Campuses, and their affiliates
and supporting organizations to continue providing public higher education to their students.

33 Correspondence, p. 17.
34 CFTC Staff Letter 85-22 [1984-1986 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶22,821 (Nov. 20, 1985).
35 For instance, the 85-22 Letter imposed conditions requiring the recipient to, among other things, “commit no more
than five percent of any fund it operates to initial margin for futures contracts and premiums on commodity option
contracts,” and “use commodity interests for any such fund in a manner incidental to the operation of such fund’s
cash portfolio.” Id. at 7. The Division believes similar restrictions are unnecessary in this context because the
provision of relief herein is primarily based on the fact that the interests of the CPOs, Funds, and Fund participants
are closely aligned, if not nearly identical
on
contracts,” and “use commodity interests for any such fund in a manner incidental to the operation of such fund’s
cash portfolio.” Id. at 7. The Division believes similar restrictions are unnecessary in this context because the
provision of relief herein is primarily based on the fact that the interests of the CPOs, Funds, and Fund participants
are closely aligned, if not nearly identical. Where the Funds and their operators are additionally overseen by
University officials and the State of “F”, and already subject to a disclosure and reporting regime, the Division finds
that specific requirements with respect to the Funds’ commodity interest trading would not provide any additional
substantive protections to Fund participants.

RE: Relief for University “A” Management Company and the “Z” Fund Directors from
CPO Registration
Page 12

Consistent with the 85-22 Letter, the Funds discussed herein provide their participants with
disclosure documents, periodic reports, audited annual reports, and other information about how
their assets are being managed. The conditions of relief below are also consistent with the 85-22
Letter, in that they establish appropriate limitations for participant eligibility and require that any
commodity trading advice provided to the Funds be provided by an entity or person registered as
a commodity trading advisor (“CTA”) with the Commission.

Based on the specific facts and analysis above, the Division has determined that it will
not recommend to the Commission that it take an enforcement action against either University
“A” Management Company or the “Z” Fund Directors for their failure to register as CPOs,
provided that they and the Funds meet the conditions outlined below:

1) “Z” Fund Enrollment:
a. Grandfathered Participants
Based on the specific facts and analysis above, the Division has determined that it will
not recommend to the Commission that it take an enforcement action against either University
“A” Management Company or the “Z” Fund Directors for their failure to register as CPOs,
provided that they and the Funds meet the conditions outlined below:

1) “Z” Fund Enrollment:
a. Grandfathered Participants. Pursuant to this letter, and subject to the remaining
conditions of this relief, the Division agrees that the current participants in the “Z”
Fund be permitted to continue their participation in the “Z” Fund, with respect to
their existing and any future investments they may make in the “Z” Fund.

b. IRC Section 509(a)(3) “Supporting Organizations” or Associated Entities. Any
new participant in the “Z” Fund is required to be (i) a tax-exempt entity that is a
supporting organization of Campus “B”, pursuant to IRC Section 509(a)(3);36 or
(ii) a foundation, association, corporation, limited liability company, partnership,
or other non-profit entity that is both an “Associated Entity” as defined by the
University Policy Manual, and is established by the officers of Campus “B”, is
controlled by Campus “B”, raises funds in the name of Campus “B”, or has a
primary purpose of providing services or conducting activities in furtherance of
the mission of Campus “B”, pursuant to an agreement with Campus “B”.

2) Commodity Trading Advice: To the extent that the University “A” Management
Company, the “Z” Fund Directors, or the Funds receive commodity trading advice in the
management of Fund assets from third-party investment advisers or managers, such
advice must only be provided by persons or entities registered with the Commission as
CTAs, exempt from such registration, or excluded from the CTA definition.37

36 26 U.S.C. 509(a)(3)
ny, the “Z” Fund Directors, or the Funds receive commodity trading advice in the
management of Fund assets from third-party investment advisers or managers, such
advice must only be provided by persons or entities registered with the Commission as
CTAs, exempt from such registration, or excluded from the CTA definition.37

36 26 U.S.C. 509(a)(3).
37 The Correspondence notes that, “to the extent any third-party investment manager engages in commodity interest
trading, University “A” Management Company expects that such person is (or would be) registered as a CPO and/or
… [CTA] as applicable or qualifies (or would qualify) for a registration exemption.” Correspondence, p. 10. As
noted above, this condition is also consistent with that imposed on similar relief granted by the Division’s
predecessor to an organization exclusively managing university and college endowment assets. CFTC Staff Letter
85-22, p. 7.

RE: Relief for University “A” Management Company and the “Z” Fund Directors from
CPO Registration
Page 13

The relief issued by this letter does not excuse persons relying on it from compliance with
any other applicable requirements contained in the Act or in the Commission regulations issued
thereunder. Further, this letter, and the relief contained herein, is based upon the representations
made to the Division. Any different, changed, or omitted material facts or circumstances might
render this letter void. The Division retains the authority to condition further, modify, suspend,
terminate, or otherwise restrict the terms of the relief provided herein in its discretion. Finally, this
letter and the position taken herein represent the views of this Division only, and do not necessarily
represent the views of the Commission or of any other office or division of the Commission
ender this letter void. The Division retains the authority to condition further, modify, suspend,
terminate, or otherwise restrict the terms of the relief provided herein in its discretion. Finally, this
letter and the position taken herein represent the views of this Division only, and do not necessarily
represent the views of the Commission or of any other office or division of the Commission.

If you have any questions regarding this letter, please contact Amanda Olear, Associate
Director, at 202-418-5283 or aolear@cftc.gov, or Elizabeth Groover, Special Counsel, at 202-
418-5985 or egroover@cftc.gov.

Very truly yours,
Eileen T. Flaherty
Director
Division of Swap Dealer and
Intermediary Oversight

cc:
Regina Thoele, Compliance

National Futures Association

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/CFTC_L17_19. Check the current official text before relying on it. Not legal advice.