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Financial Services Alert
SEC Staff Provides Advisers Act Guidance on Umbrella Registration and on GPs and Other Special Purpose Entities
The staff of the SEC’s Division of Investment Management (the “Staff”) provided no-action relief that would allow affiliated advisers conducting a single advisory business to register under Investment Advisers Act of 1940 (the “Advisers Act”) by filing a single Form ADV, provided certain conditions are met.  The Staff also affirmed and elaborated on past guidance regarding whether certain special purpose entities established by registered advisers to act as general partners or managing members of the advisers’ private funds (“SPEs”) must register under the Advisers Act.

Umbrella Registration

The Staff stated that it would not recommend enforcement action against an adviser that files (or amends) a single Form ADV (the “filing adviser”) for itself and each other adviser that it controls or is under common control with (each a “relying adviser”) when the filing and relying advisers (a) individually are eligible for federal registration and (b) collectively conduct a single advisory business.  The Staff listed the following conditions under which a filing adviser and relying advisers would conduct a single advisory business within the scope of the no-action relief, absent other facts suggesting that they do not:

Nature of Clients.  The filing adviser and relying advisers’ only clients are (a) private funds (funds that rely on Section 3(c)(1) or 3(c)(7) under the Investment Company Act of 1940) and (b) separate account clients (i) that are qualified clients (as defined in Advisers Act Rule 205-3) and are otherwise eligible to invest in the private funds advised by the filing adviser or a relying adviser and (ii) whose accounts pursue investment objectives and strategies that are substantially similar or otherwise related to those private funds.

Filing Adviser Supervision and Control.  Each relying adviser, its employees and the persons acting on its behalf are treated as “associated persons” of the filing adviser under the Advisers Act.

Single Compliance Program, CCO and Code of Ethics.  The filing adviser and each relying adviser operate under a single set of written compliance policies and procedures administered by a single chief compliance officer and are subject to a single code of ethics.  (The no-action relief allows for different treatment of relying advisers depending on the jurisdictions in which they operate.)

U.S. Filing Adviser - All Clients Treated as U.S. Clients.  The filing adviser has its principal office and place of business in the United States, and all the substantive provisions of the Advisers Act apply to its and each relying adviser’s dealings with clients, regardless of whether a client or adviser is a United States person.

Application of Advisers Act – SEC Examination.  The advisory activities of each relying adviser are subject to the Advisers Act, and each relying adviser is subject to SEC examination.

Identification of Relying Advisers.  The filing adviser’s Form ADV discloses reliance on the no-action relief and separately identifies each relying adviser.

Guidance On GPs and Other SPEs

The Staff affirmed its prior guidance allowing a SPE that is established to serve as a general partner or managing member of a private fund to look to and rely on its establishing adviser’s SEC registration under certain conditions (see Section G. Question 1. in the Staff’s December 8, 2005 response to the ABA Committee on Private Investment Entities).  The specific conditions are as follows: “(i) the investment adviser to a private fund establishes the [SPE] to act as the private fund’s general partner or managing member; (ii) the [SPE’s] formation documents designate the investment adviser to manage the private fund’s assets; (iii) all of the investment advisory activities of the [SPE] are subject to the Advisers Act and the rules thereunder, and the [SPE] is subject to examination by the [SEC]; and (iv) the registered adviser subjects the [SPE], its employees and persons acting on its behalf to the registered adviser’s supervision and control and, therefore, the [SPE], all of its employees and the persons acting on its behalf are ‘persons associated with’ the registered adviser (as defined in section 202(a)(17) of the Advisers Act).”

The Staff also indicated that the guidance is not limited to the situation where an adviser established a single SPE, but could apply to allow a single registration to cover a group of SPEs and the adviser that established them.  The Staff also clarified that an SPE could rely on the prior guidance if the SPE had a director (or other person performing similar functions) who was not an “associated person” of the establishing adviser, provided that the director was independent of the adviser.

Focus On Registered Investment Advisers, Not Exempt Reporting Advisers

The Staff focused its guidance exclusively on advisers that are subject to the registration requirements of the Advisers Act, and did not address advisers that qualify as exempt reporting advisers (“ERAs”) under the Advisers Act.  In general, ERAs are qualified advisers that manage exclusively venture capital funds or that have less than $150 million in assets under management in the United States exclusively in private funds.  It is possible (but not assured) that the Staff will adopt more relaxed guidelines for determining when affiliated ERAs may be covered by a single (partial) Form ADV.  For more information about ERAs, please see the June 30, 2011 Goodwin Procter Alert.

© 2014 Goodwin Procter LLP. All rights reserved. This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided with the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin Procter LLP, Goodwin Procter (UK) LLP or their attorneys. Prior results do not guarantee similar outcome.

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