The Staff of the SEC’s Division of Investment Management (the “Staff”) issued a no-action letter stating that it would not recommend enforcement action against a wholly-owned subsidiary (the “Adviser”) providing investment advisory services solely to four foreign funds (the “Funds”) in which the Adviser’s parent (the “Parent”) is the only investor. The Adviser, a New York corporation, is a wholly-owned subsidiary of the Parent, a Japanese insurance federation. The Adviser was established as a separate entity for tax reasons and operates solely for the purpose of providing investment advisory services to the Funds, each a series of a trust established under Bahamian law. The Adviser has its only place of business in New York City and has assets under management in the United States in excess of $150 million. All investment management personnel of the Adviser are seconded from the Parent. The Adviser pays the salaries of its personnel. The Adviser does not hold itself out to the public as an investment adviser and intends to provide investment advisory services solely to the Funds and any future private funds in which the Parent or one of its wholly‑owned subsidiaries is the only investor. The Funds are designed to enable the Parent to pool and invest premiums received from its insureds to meet claim obligations and other operating costs of the Parent’s business. Neither the Parent nor the Adviser has received any investment direction from any of the Parent’s insurers or from any third party.
Whether an investment adviser must register under the Investment Advisers Act of 1940 (the “Advisers Act”) depends in part on whether it is an “investment adviser,” which the Advisers Act defines in basic terms as “any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities.” The Adviser, which had relied on the “private adviser exemption” eliminated by the Dodd‑Frank Act effective July 21, 2011, sought relief from the Staff on the grounds that it was not an “investment adviser” subject to the Advisers Act because it was not in the business of “advising others.” In granting relief, the Staff cited in particular representations from the Adviser that (1) it is a wholly-owned subsidiary of the Parent; (2) it was established and has been operated for the sole purpose of providing investment advisory services to the Parent via the Funds in which the Parent is the only investor; (3) the Adviser does not hold itself out to the public as an investment adviser; and (4) the Funds are established solely for the benefit of the Parent and consist solely of the Parent’s assets.