Financial Reform Law Changes Registration Requirements

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Unregistered managers of private funds need to be aware of significant changes in the laws regarding investment adviser registration. The Wall Street Reform And Consumer Protection Act, signed into law on July 21, 2010 (the “Act”), eliminated the “private adviser” exemption from registration available under Rule 203(b)(3) of the Investment Advisers Act. The “private adviser” exemption allowed an adviser to avoid registration, either state or federal, if the adviser did not hold itself out as an adviser, had fewer than 15 clients in the preceding 12 months, and did not advise an investment company registered under the Investment Company Act of 1940 (the “40 Act”). Advisers that provide investment advice to fewer than 15 private funds, such as private equity funds and hedge funds, commonly relied on this exemption to avoid registration. The Act eliminated the “private adviser” exemption so that advisers to private funds with greater than $150 million in assets under management will now be required to register with the SEC. Advisers solely to private funds with less than $150 million in assets under management will be excluded from federal registration but may be subject to state registration.

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