Can I transfer a warehoused investment to the fund at FMV?
Pablo Vidal Arean
May 03, 2023
Best practice is for warehoused investments to be transferred at cost. If there has been a markup, you could try and account for this markup, however please note: It is difficult to price the interest if there has not been a subsequent equity financing from the time you initially purchased the interest. If there has been no subsequent equity financing, you should engage a third party to determine the valuation. This may be difficult as you will need to rely on the portfolio company for certain information and the portfolio company may be unwilling to help as valuation information is sensitive. If there has been a subsequent equity financing, then you can use the last round's PPS. You will need to disclose the transfer price to prospective investors before they are admitted to the fund. If you are not transferring at cost, you will need to disclose how you determined the purchase price (ie based on last round's PPS, or third party) For these reasons, it is easiest to transfer at cost.
There are also personal tax consequences. If you transfer to the fund at FMV, and in return you personally receive a % of the fund at FMV, then you basically "sold" your investment to the fund at a gain, and this is a taxable event for you personally. Consult your tax attorney.