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Fund Managers: SEC Anticipates Issuing Final Rules
Regarding Investment Adviser Registration Under Dodd-Frank by July 21, 2011;
May Delay Registration Until First Quarter of 2012
For fund managers with
fewer than 15 clients who have relied on the private adviser exemption of
Section 203(b)(3) of the Investment Advisers Act of 1940 (the "Advisers
Act") (the exemption that was repealed by the Dodd-Frank Wall Street
Reform and Consumer Protection Act (the "Dodd-Frank Act"), effective
July 21, 2011, and relied upon by most hedge funds and other private funds),
the SEC expects to adopt rules exempting advisers to venture capital and private
funds by July 21, 2011, and expects to extend the date by which private fund
advisers must register with the SEC and come into compliance with the
obligations of a registered investment adviser until the first quarter of
2012. Robert Plaze, Associate Director
of the SEC's Division of Investment Management, recently sent a letter to the
Deputy Securities Administrator, North Carolina Securities Division and the
President of the North American Securities Administrators Association, Inc.
signaling the potential delay. For a copy of the letter, see www.sec.gov/rules/proposed/2010/ia-3110-letter-to-nasaa.pdf. Absent the extension,
private fund advisers that are no longer exempt from registration must be
registered by filing Form ADV with the SEC by July 21, 2011. While an extension is likely, it has not yet
been officially granted, and as July 21, 2011 approaches, fund managers should begin
analyzing whether they will need to register as an investment adviser with the
SEC or a state securities authority. The SEC has proposed several rules to
clarify the new exemptions from registration in the Advisers Act for investment
advisers that (1) only advise venture capital funds or (2) only advise private
funds and have less than $150 million in assets under management (AUM). We recommend that fund managers that believe
that they will have to register based on the guidance in the proposed rules
begin preparing for registration now, as the process can take several months to
fully complete. Private fund advisers
that believe that they are exempt from registration based on the guidance in
the proposed rules should still be aware that exempt fund managers are subject
to new reporting requirements that require them to disclose certain limited
information to the SEC on Form ADV, the first filing of which is due no later
than August 20, 2011 (absent the extension).
For your convenience,
we have included below additional information about the "venture capital
fund" and the under $150 million AUM exemptions based on the guidance in
the proposed rules. While the proposed
rules give substance to these exemptions and clarify the terms and methods of
their application, they do leave many issues still unaddressed. For example, the proposed rules do not
provide any guidance as to multiple advisers under common control. Some advisers have established two or more
management companies or special purpose entities to advise different funds in
their portfolio, and potentially (if looked at separately), would qualify for a
registration exemption if they were not aggregated under the proposed
rules. Hopefully, in the adopting
release, the SEC will confirm that activities of affiliates will not impact the
ability of an adviser to rely on the new rules or, alternatively, provide
guidance as to the circumstances under which the activities of an affiliate of
an adviser will be considered together with the activities of the adviser in
terms of compliance with these proposed rules.
In addition, the proposed rules also do not provide any guidance on
whether or not an adviser can rely on multiple exemptions.
Read the entire article about Private Fund Adviser Exemptions. |
