On June 22, 2011, the Securities and Exchange Commission (the “SEC”) adopted final rules implementing new exemptions from registration as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).

Background

Many private fund advisers historically have avoided registration with the SEC by relying upon the “private adviser exemption” set forth in Section 203(b)(3) of the Advisers Act (the “Private Adviser Exemption”), which provided an exemption from registration for advisers with fewer than 15 clients. For purposes of the Private Adviser Exemption, advisers could treat each private fund as a single client. Effective July 21, 2011, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) eliminates the Private Adviser Exemption and replaces it with several much more limited exemptions from registration. Specifically, Section 203 of the Advisers Act now provides exemptions from registration for:

• advisers that provide advice solely to one or more private funds¹ that have assets under management in the United States of less than $150 million (the “Private Fund Adviser Exemption”);
• advisers that provide advice solely to one or more venture capital funds (the “Venture Capital Exemption”); and
• foreign private advisers that (i) have no place of business in the United States; (ii) have, in total, fewer than 15 U.S. clients and investors in private funds advised by such advisers; (iii) have less than an aggregate of $25 million in assets that are attributable to U.S. clients and investors in private funds advised by such advisers; (iv) do not hold themselves out to the public as investment advisers in the United States; and (v) do not advise any registered investment companies or business development companies (the “Foreign Adviser Exemption”).

For a more detailed description of the exemptions for Private Fund Advisers, venture capital advisers and foreign advisers, click here and then click on the PDF linked to that page.

Other Rules and Amendments

On June 22, 2011, the SEC also adopted final rules and amendments under the Advisers Act that extend the deadline for registration for advisers relying on the private adviser exemption, modify the method advisers use to calculate their assets under management, establish the reporting requirements for exempt reporting advisers and amend Form ADV, a summary of which is available here. The SEC also adopted a final rule defining “family offices” that will be excluded from the definition of “investment adviser” under the Advisers Act, a summary of which is available here.

For additional information regarding the new exemptions, please contact one of the attorneys listed below.