Alert March 27, 2012

SEC Staff Provides Further Guidance to Exempt Reporting Advisers on Reporting Special Purpose Entities in Form ADV

The staff of the SEC’s Division of Investment Management (the "Staff") supplemented its "Frequently Asked Questions on Form ADV and IARD" (the "FAQ") to broaden the circumstances under which it would permit an exempt reporting adviser (an "ERA") to include a general partner, managing member or similar special purpose entity ("SPE") of one of the adviser’s private funds in the adviser's report on Form ADV and thereby satisfy the SPE's own ERA reporting obligation. (An ERA is an adviser that relies on the venture capital fund adviser exemption under Section 203(l) of the Investment Advisers Act of 1940 (the "Advisers Act") or the private fund adviser exemption under Section 203(m) of the Advisers Act.) The Staff had previously provided more limited no action relief for SPEs, as discussed in the March 20, 2012 Financial Services Alert.

The Staff's more recent no-action relief applies to the situation where an SPE delegates certain responsibility for managing a private fund to the reporting ERA, but retains and exercises discretionary authority over the private fund's assets. Such an SPE can satisfy its reporting obligation as an ERA by including in the adviser's report on Form ADV all of the information that the SPE would have provided had it reported separately, provided the following conditions are met: (i) the SPE acts as the SPE only for private funds or other pooled investment vehicles advised by the reporting adviser; (ii) the reporting adviser controls the SPE; (iii) the investment advisory activities of the SPE are subject to the Advisers Act; (iv) the SPE has no employees or other persons acting on its behalf other than officers, directors, partners or employees of the reporting adviser; and (v) the SPE, its officers, directors, partners, employees and persons acting on its behalf are subject to the reporting adviser's supervision and control, making them associated persons of the reporting adviser for purposes of the Advisers Act.

The Staff's prior guidance about reporting SPE-related information in the applicable adviser's Form ADV also applies to the circumstances of the more recent relief: (a) Schedules A and B should include an SPE's executive officer and ownership information, identifying the SPE to which the officer and ownership information relates in the "Title or Status" column of Schedule A; and (b) responses to the questions in Form ADV should relate to, and include all information concerning, the ERA and each SPE being reported in the Form ADV.