On June 22, 2011, the Securities and Exchange Commission (SEC) held an open meeting and approved final rules to implement the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) that created exemptions from the requirement to register under the Investment Advisers Act of 1940 (Advisers Act) for advisers to venture capital funds, private fund advisers with less than $150 million in assets under management, and foreign private advisers. Below are highlights from the meeting:
- Registration Deadline Extension to March 30,
2012. The deadline for private fund advisers required to
register with the SEC was extended to March 30, 2012.
- Venture Capital Exemption and 20
percent "Non-Qualifying" Basket. The SEC
approved final rules regarding the exemption for advisers solely to
venture capital funds (the Venture Capital Exemption). While the
SEC indicated that the final definition of "venture capital
fund" will largely remain the same as the definition proposed
by the SEC in November 2010, there will be at least one significant
change to the definition that is beneficial to venture capital fund
managers. While the proposed definition only applied to funds that
own solely cash, cash equivalents, short-term U.S. treasuries and
equity securities of "qualifying portfolio companies,"
the final definition will permit venture capital fund managers to
invest up to 20 percent of a fund's aggregate commitments in
"non-qualifying" investments. The SEC also approved
largely as proposed the "grandfathering" exemption for
funds that sold securities to one or more unrelated investors prior
to December 31, 2010, that were represented as "pursuing a
venture capital strategy" at the time of the offering of the
securities and that do not accept any additional commitments after
July 21, 2011.
- Private Fund Adviser and Foreign Adviser
Exemptions. The exemptions relating to advisers solely to
private funds that have less than $150 million in assets under
management in the United States (the Private Fund Adviser
Exemption) and foreign private advisers were adopted largely as
proposed. Accordingly, a non-U.S. adviser will not be required to
register if it does not manage any accounts directly for U.S.
persons, and all assets it manages from a place of business in the
United States are solely attributable to private fund assets, the
total value of which is less than $150 million. For purposes
of the Private Fund Adviser Exemption, the SEC indicated that the
final rules will only require advisers to determine assets under
management on an annual basis (rather than quarterly as
proposed).
- Amendments to Form ADV Part 1. The SEC
approved extensive amendments to Part 1 of Form ADV to require
additional information about advisers and the private funds that
they manage.
- Exempt Reporting Advisers. The SEC approved
rules that would require "Exempt Reporting Advisers"
(i.e., advisers relying on either the Venture Capital Exemption or
the Private Fund Advisers Exemption) to file an abbreviated version
of Form ADV Part 1 annually. The SEC noted that Exempt Reporting
Advisers would be subject to recordkeeping rules to be adopted in
the future and would be subject to limited SEC examination
oversight.
- Family Office Exemption. The SEC adopted
the exemption for advisers to family offices, and expanded the
exemption to permit additional categories of family members and key
employees to be clients of the family office.
- Transition to State Registration. SEC-registered investment advisers that must withdraw their federal registration and transition to state registration must make the transition by June 28, 2012.1
The SEC is expected to publish the final rules shortly, at which point they will be available on the SEC's website (http://www.sec.gov). We will provide additional details on the scope of the final rules at such time.
Footnote
1. The Dodd-Frank Act will generally require investment advisers with between $25 million and $100 million to register with the state in which it has its principal office and place of business (rather than the SEC) if the adviser is otherwise required to be registered in the state and the state has its own examination program.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
