On June 22, 2011, the Securities and Exchange Commission (the “SEC”) adopted final rules under the Investment Advisers Act of 1940 (the “Advisers Act”) relating to provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). These new rules implement and clarify the provisions of the Dodd-Frank Act that will require previously exempt advisers, including many advisers to private investment funds, to register as investment advisers or to become “exempt reporting advisers” (“ERAs”), and satisfy new compliance obligations. The new registration obligations result primarily from the Dodd-Frank Act’s deletion of the “fewer than 15 clients” adviser registration exemption (Advisers Act Section 203(b)(3)). The SEC adopted the new rules in two rule releases that focused on defining and clarifying the Advisers Act registration exemptions adopted under the Dodd-Frank Act (the “Exemptive Release”) and implementing those exemptions (the “Implementing Release”).
For the most part, the new rules are similar to the rules proposed November 19, 2010, with four principal modifications: (1) as a practical matter, compliance generally has been delayed from July 21, 2011 to March 30, 2012; (2) venture capital funds will have more flexibility under the new rules, including an ability to make non-conforming investments, subject to a 20% basket; (3) non-U.S. firms that deal with U.S. clients or U.S. fund investors may benefit from the continuing ability to avoid integrating a registered U.S. adviser and an affiliated, unregistered non-U.S. adviser under the Unibanco line of no-action letters (discussed here), although the future application and interpretation of prior guidance under the new rules remains undetermined; and (4) the new rules apply a more uniform test to measure “assets under management” both to make determinations regarding registration and to satisfy other regulatory requirements.
Key elements of the new rules are as follows:
2 Under Advisers Act Section 202(a)(29), the term “private fund” means “an issuer that would be an investment company, as defined in section 3 of the [Investment Company Act of 1940], but for section 3(c)(1) or 3(c)(7) of that Act.” As discussed elsewhere in this Alert, a fund organized outside the U.S. that does not use U.S. jurisdictional means to conduct an offering (and, in particular, does not offer interests to U.S. persons) generally would not be a “private fund” for this purpose, under the SEC’s prior interpretation of the Investment Company Act of 1940. (See Advisers Act Release No. IA-3222 FN 294.)
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