At an open meeting on June 22, the Securities and Exchange Commission adopted new rules under the Investment Advisers Act of 1940 aimed at investment advisers, private fund managers, venture capital funds, and family offices.
Based on the statements at the meeting, there will be three new rules would:
Delay Registration Deadline and a New Form ADV. The new registration/reporting deadline for new Advisers Act registrants and “exempt reporting advisers” will be March 30, 2012. Previously exempt private advisers, particularly those to hedge funds and private equity funds, will not be required to register until March 30, 2012. All advisers will be required to make a filing in the first quarter of 2012. Those previously registered advisers who no longer qualify for SEC registration will be required to withdraw by June 28, 2012.
The SEC staff pointed out that 2012 is a leap year, so the 90 day deadline is March 30 instead of March 31 in 2012.
Form ADV is going to change. No surprise. Under the amended adviser registration form, advisers to private funds will have to provide:
- Basic organizational and operational information about each fund they manage, such as the type of private fund that it is (e.g., hedge fund, private equity fund, or liquidity fund), general information about the size and ownership of the fund, general fund data, and the adviser’s services to the fund.
- Identification of five categories of “gatekeepers” that perform critical roles for advisers and the private funds they manage (i.e., auditors, prime brokers, custodians, administrators and marketers).
- More information about conflicting or potential conflicting relationships.
Define Venture Capital Funds. Under the definition, a venture capital fund is a private fund that:
- Invests primarily in “qualifying investments” (generally, private, operating companies that do not distribute proceeds from debt financings in exchange for the fund’s investment in the company); may invest in a “basket” of non-qualifying investments of up to 20 percent of its committed capital; and may hold certain short-term investments.
- Is not leveraged except for a minimal amount on a short-term basis. Borrowing is limited in time as well.
- Does not offer redemption rights to its investors.
- Represents itself to investors as pursuing a venture capital strategy.
- Is not registered under the Investment Company Act.
There will be a rule on grandfathering substantially as proposed in November, with the three conditions that the fund had been represented to be a “venture capital fund,” that the first closing was prior to December 31, 2010 and that no new capital commitments are made after July 21, 2011.
The new category of venture capital fund advisers and other “exempt reporting advisers” will file portions of Part 1 of Form ADV. Commissioner Schapiro noted that there was no current intention to subject exempt reporting advisers to routine examinations, while also noting that the SEC retains the authority to examine those advisers in its discretion. The Staff noted that the Form ADV will include a uniform calculation for “assets under management.”
Family Office Exemption. This exemption should be consistent with no-action relief previously provided and the proposed rule. It sounds like there will be some expansion to address a broader universe of permitted family clients and ta longer transition period (through December 31, 2013) for the termination of relationships with charitable entities that were not exclusively funded by the family.
These rules will have completed most of the rulemaking required under Title IV of Dodd-Frank, the Private Fund Investment Advisers Registration Act.
My printer is still cranking out the text of the new rules and I need to dive deeper into the details.
- IA-3222 – Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers With Less Than $150 Million in Assets Under Management, and Foreign Private Advisers (.pdf)
- IA-3221 – Rules Implementing Amendments to the Investment Advisers Act of 1940 (.pdf)
- IA-3220 – Family Offices (.pdf)
- Webcast Archive SEC Open Meeting Wednesday, June 22, 2011
- SEC Adopts Dodd-Frank Act Amendments to Investment Advisers Act – SEC Press Release
- SEC Adopts Rule Under Dodd-Frank Act Defining “Family Offices” – SEC Press Release