SEC Proposes Rules to Implement the Private Fund Investment Advisers Registration Act

by Ropes & Gray LLP

On November 19, 2010, the Securities and Exchange Commission (“SEC”) proposed rules to implement certain provisions under the Private Fund Investment Advisers Registration Act of 2010 (the “Registration Act”), which was signed into law as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”). If adopted as proposed, these new rules would effect significant changes to the existing registration and reporting regime applicable to both registered and unregistered advisers under the Investment Advisers Act of 1940 (the “Advisers Act”). Among other things, the rules would:

1. Clarify the scope of new exemptions from registration for certain advisers, including exemptions for advisers solely to venture capital funds, advisers solely to private funds managing less than $150 million in assets in the United States, and foreign private advisers;

2. Clarify eligibility requirements for registration as an investment adviser with the SEC for advisers with less than $100 million in assets under management (certain of these clarifications would also affect advisers with greater than $100 million in assets under management);

3. Set forth reporting requirements for certain advisers exempt from registering with the SEC;

4. Expand the information required to be provided by registered investment advisers under Form ADV, including by establishing substantial new reporting requirements with respect to each private fund advised by a registered adviser; and

5. Amend the political contribution rules adopted by the SEC earlier this year.

A summary of the SEC’s proposed rules and other amendments implementing the Registration Act appears below. The SEC’s proposed rules implementing the Registration Act may be found here and here. The SEC is accepting comments on the proposed rules until approximately January 4, 2011 (the exact date will be 45 days after publication of the proposed rules in the Federal Register).

1. Exemptions from the Advisers Act Registration Requirements

The Registration Act eliminated the so-called “private adviser exemption” under Section 203(b)(3) of the Advisers Act, which exempted any investment adviser from registration if the adviser did not hold itself out to the public as an investment adviser, had fewer than 15 clients (with each private fund counting as a single client for this purpose), and was not an adviser to a registered investment company. In lieu of the private adviser exemption, the Registration Act created three new exemptions from registration under the Advisers Act: (i) an exemption for advisers solely to venture capital funds (the “venture capital fund exemption”); (ii) an exemption for advisers solely to private funds with less than $150 million in assets under management in the United States, without regard to the number or type of private funds (the “private fund adviser exemption”); and (iii) an exemption for certain non-U.S. advisers with no place of business in the United States and minimal assets under management attributable to U.S. clients and investors (the “foreign private adviser exemption”).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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