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The ABA submitted a no-action letter request to the SEC to clarify certain investment adviser registration matters following the Dodd-Frank Act with respect to private equity and hedge fund advisers.  The SEC response can be found here.

Section 203(a) of the Investment Advisers Act generally provides that it is unlawful for an investment adviser to engage in business without registering under that Act, unless an exemption is available. Section 202(a)(11) of the Investment Advisers Act defines the term “investment adviser” broadly to include any person who for compensation provides advice about securities as part of a regular business. This definition is sufficiently broad to include not only a corporation, partnership or sole proprietorship doing business as an investment adviser, but also many of the adviser’s employees. Nevertheless, the SEC and its staff have, as a matter of administrative practice, not required natural persons associated with a registered adviser to themselves register separately solely as a result of their activities as associated persons.   The SEC has treated the registered adviser’s registration with the SEC as effectively covering these associated persons.

In a December 8, 2005 letter addressed to the American Bar Association’s Subcommittee on Private Investment Entities (“2005 Staff Letter”), the staff took a similar approach with respect to certain special purpose vehicles (“SPVs”) created by a registered adviser.   In that letter, the staff stated that it would not recommend enforcement action to the SEC under section 203(a) or section 208(d) of the Advisers Act against a registered adviser and an SPV if the SPV does not separately register as an investment adviser, subject to the following representations and undertakings (collectively, the “2005 Conditions”):

  • the investment adviser to a private fund establishes the SPV to act as the private fund’s general partner or managing member;
  • the SPV’s formation documents designate the investment adviser to manage the private fund’s assets;
  • all of the investment advisory activities of the SPV are subject to the Advisers Act and the rules thereunder, and the SPV is subject to examination by the Commission;  and
  • the registered adviser subjects the SPV, its employees and persons acting on its behalf to the registered adviser’s supervision and control and, therefore, the SPV, all of its employees and the persons acting on its behalf are “persons associated with” the registered adviser (as defined in section 202(a)(17) of the Advisers Act).

Subject to the 2005 Conditions, the SPV would look to and essentially rely upon the registered adviser’s registration with the Commission in not submitting a separate Form ADV.

The ABA submitted the no-action request as a result of the Dodd-Frank Act’s repeal of the exemption previously provided by section 203(b)(3) of the Advisers Act The ABA inquired whether the 2005 Staff Letter continued to represent the position of the staff.

In response, the SEC staff noted, among other things:

  • The 2005 Staff Letter continues to represent the staff’s position.
  • The position expressed in the 2005 Staff Letter is not limited to a registered adviser with a single SPV.
  • The staff would not recommend enforcement action to the SEC against a registered adviser and its SPV(s) if the only persons acting on an SPV’s behalf that the registered adviser does not supervise and control are directors who are independent of the registered adviser.
  • The SEC staff will not recommend enforcement action to the SEC against an investment adviser that files a single Form ADV (“filing adviser”) on behalf of itself and each other adviser that is controlled by or under common control with the filing adviser that is registering through a single registration with the filing adviser (each, a “relying adviser”)  where the filing adviser and each relying adviser collectively conduct a single advisory business.

Check frequently for updates on the Dodd-Frank Act and other important securities law matters.

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