Alert April 03, 2012

Advisers Act Contract Requirements for Newly Registering Advisers

On March 30, 2012, the staff of the SEC’s Division of Investment Management (the “Staff”) supplemented its Investment Management Staff Issues of Interest posting on the SEC website to include no-action relief for a newly registering adviser from provisions of the Investment Advisers Act of 1940 (the “Advisers Act”) that require an adviser’s contracts to provide that (i) the contract may not be assigned without the client’s consent and (ii) if a partnership, the adviser will notify its clients of any change in membership within a reasonable time after such change (both provisions together, “Sections 205(a)(2) and (3)”).  Consistent with past relief designed to minimize the disruption to contracts that were permissible when they were entered into by newly registering advisers, the Staff stated that it would not recommend enforcement action against an adviser that has applied for registration, but was not registered or required to be registered when it entered into its advisory contracts, if the adviser does not amend an advisory contract to include the provisions required under Sections 205(a)(2) and (3), provided that: (i) the advisory contract was entered into or last amended prior to the submission of the adviser’s application for registration; (ii) any future amendment of the advisory contract will include the provisions required under Sections 205(a)(2) and (3); (iii) the adviser undertakes to operate and perform under the advisory contract as if it contained the provisions required under Sections 205(a)(2) and (3); and (iv) the adviser discloses such undertaking to the client and, in the case of a private fund client, each investor (or independent representative of the investors) in such client.