Crossing Borders into U.S. Private Markets: The Work That Happens Off the Term Sheet

Two legal systems, and an information gap

A private-fund or private-company interest is offered privately, usually under U.S. securities law, to investors who meet a defined test. For a U.S. offer, that test is commonly the accredited-investor standard under the Securities and Exchange Commission's rules ^[1]. The investor, however, also has to consider the law that applies at home. In Canada, prospectus exemptions are set out in National Instrument 45-106, administered with the provincial and territorial securities regulators, including the Ontario Securities Commission ^[2]. In Hong Kong, the Securities and Futures Commission administers the Professional Investor Rules ^[3]. In Singapore, the Securities and Futures Act defines accredited-investor and institutional-investor categories, including in section 4A ^[4]. In Japan, the Financial Services Agency administers a framework that includes a special business regime for offers to qualified institutional investors and certain other eligible persons ^[5]. These are pointers to official sources, not a determination of any person's status, and not a complete account of any regime. Nothing on this website confirms or assesses eligibility.

The information that accompanies a private offer is typically thinner, and more uneven, than the information around a listed share. Documents are often written for a U.S. domestic reader. Language, time zones and the practical difficulty of sitting with a manager or a company all add friction. Those are ordinary features of a cross-border private commitment. They are not reasons to treat any offer as attractive, and they are not reasons to skip independent legal and tax advice.

Tax, currency and reporting sit around the interest

A non-U.S. investor in a U.S. interest can face U.S. tax withholding and filing obligations. The Internal Revenue Service currently describes a 30% statutory withholding tax on certain U.S.-source income paid to a non-resident alien, subject to any applicable treaty ^[6]. The investor's home jurisdiction may also tax the same income, may require reporting of foreign holdings, and may restrict the movement of funds. Mainland China's State Administration of Foreign Exchange, for example, administers an individual annual foreign-exchange facilitation quota of US$50,000 ^[7]. These citations describe official rules at a high level. They are not tax advice, they are not a recommendation of any structure, and they are not assistance in circumventing outflow, eligibility or reporting rules. An investor should take advice from qualified counsel and tax advisers in the relevant jurisdictions before considering any commitment.

Process is part of the investment

The path into a private interest is itself work: reviewing a private placement memorandum and a limited-partnership agreement, completing a subscription booklet, arranging bank and custody arrangements that can receive a capital call, and meeting the manager's timetable. Errors and delays have consequences, because the process is closed and because an interest, once taken, is typically illiquid for many years. Capital can be lost. Transfer is usually restricted. None of that work is a substitute for a judgment about the manager or the company, discussed in In Private Markets, Manager Outcomes Diverge Widely.

A specialist, cross-border reading

The work that sits off the term sheet is why investors approaching U.S. private markets from Canada, from Asia and from other jurisdictions often look for a counterpart who can read a transaction as an owner would, and who can work in the languages and legal cultures on both sides of the commitment. A specialist cross-border partner — fluent in English, Traditional Chinese, Simplified Chinese and Japanese, and at home in U.S. private markets — is built for that work.