Alert November 23, 2010

SEC Proposes Rules to Implement Dodd-Frank Act Changes to Advisers Act Exemptions, Registration Requirements and Reporting

The SEC issued two releases proposing rules designed to implement (a) three new exemptions from registration under the Investment Advisers Act of 1940 (the “Advisers Act”) created by the Dodd-Frank Act and (b) changes to the registration and reporting requirements under the Advisers Act effected by the Dodd-Frank Act.  (The statutory changes do not take effect until July 21, 2011.)   One release describes proposed rules that would address various elements of the new registration exemptions for: (1) an adviser whose sole clients are “venture capital funds”;  (ii) an adviser whose sole clients are investment companies that rely on either Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act of 1940 (“private funds”) and represent less than $150 million in assets under management in the United States; and (iii) a non-U.S. adviser with less than $25 million in aggregate assets under management from fewer than 15 U.S. clients and private fund investors (a “foreign private adviser”). 

The second release (the “Implementing Release”) proposes rule changes and form amendments that address a range of matters associated with implementing changes to Advisers Act registration and reporting requirements under the Dodd-Frank Act, including: (a) the transition to state registration for advisers that fail to meet the higher assets under management threshold for SEC registration established by the Dodd-Frank Act; (b) changes in the calculation of an adviser’s assets under management for various purposes under the Advisers Act; (c) changes to existing Advisers Act exemptions (e.g., increasing the threshold for plan assets advised to $200 million for the pension consultant exemption); (d) how venture capital advisers and private fund advisers with assets under management of less than $150 million (both types of advisers being referred to as “exempt reporting advisers”) will meet their limited SEC reporting obligations through Form ADV filings that respond to only certain items in Part 1 of the Form; and (e) revisions to Form ADV Part 1 that apply to both exempt reporting advisers and adviser registrants and are designed to capture additional information on private funds they manage (e.g., information on private fund service providers) and additional information the SEC believes will better inform its examination program (e.g., whether all soft dollars received by an adviser fall within the safe harbor of Section 28(e) of the Securities Exchange Act of 1934).  The Implementing Release also proposes changes to Advisers Act Rule 206(4)-5, the “pay-to-play” rule, that would cause it to apply to exempt reporting advisers and foreign private advisers. 

Comments on the releases are due by the 45th day after their publication in the Federal Register.  Both releases will be covered in more detail in a future edition of the Alert or another Goodwin Procter publication that will be made available to Alert readers.