SEC Proposed Rule 203(m)-1 under Investment Advisers Act
The SEC has proposed certain new rules as well as amendments to existing rules under the Investment Advisers Act as a result of the Dodd-Frank Act. New Advisers Act Section 203(m)-1 provides an exemption from registration with the SEC to those groups who only advise one or more qualifying private funds and manages less than $150 million in private fund assets. The proposed new rule 203(m)-1 essentially exempts smaller fund managers from SEC registration.
Managers should note, however, that they may still be required to either:
- Register as an investment adviser pursuant to state law
- Become a reporting adviser subject to proposed Rule 204-4
The proposed rule also provides that the exemption is available for managers who are based outside of the United States and manage funds which are domiciled in the U.S. provided that the funds have less than $150 million in assets.
The full proposed rule is reprinted below.
§ 275.203(m)-1 Private fund adviser exemption.
(a) United States investment advisers. For purposes of section 203(m) of the Act (15 U.S.C. 80b-3(m)), an investment adviser with its principal office and place of business in the United States is exempt from the requirement to register under section 203 of the Act if the investment adviser:
(1) Acts solely as an investment adviser to one or more qualifying private funds; and
(2) Manages private fund assets of less than $150 million.
(b) Non-United States investment advisers. For purposes of section 203(m) of the Act (15 U.S.C. 80b-3(m)), an investment adviser with its principal office and place of business outside of the United States is exempt from the requirement to register under section 203 of the Act if:
(1) The investment adviser has no client that is a United States person except for one or more qualifying private funds; and
(2) All assets managed by the investment adviser from a place of business in the United States are solely attributable to private fund assets, the total value of which is less than $150 million.
(c) Calculations. For purposes of this section, private fund assets are calculated as the total value of such assets as of the end of each calendar quarter.
(d) Transition rule. With respect to the calendar quarter period immediately following the calendar quarter end date that the investment adviser ceases to be exempt from registration under section 203(m) of the Act (15 U.S.C. 80b-3(m)) due to having $150 million or more in private fund assets, the Commission will not assert a violation of the requirement to register under section 203 of the Act (15 U.S.C. 80b-3) by an investment adviser that was previously exempt in reliance on section 203(m) of the Act; provided that such investment adviser has complied with all applicable Commission reporting requirements.
(e) Definitions. For purposes of this section,
(1) Assets under management means the regulatory assets under management as determined under Item 5.F of Form ADV (§ 279.1 of this title).
(2) Place of business has the same meaning as in § 275.222-1(a) of this title.
(3) Principal office and place of business of an investment adviser means the executive office of the investment adviser from which the officers, partners, or managers of the investment adviser direct, control, and coordinate the activities of the investment adviser.
(4) Private fund assets means the investment adviser’s assets under management attributable to a qualifying private fund.
(5) Qualifying private fund means any private fund that is not registered under section 8 of the Investment Company Act of 1940 (15 U.S.C 80a-8) and has not elected to be treated as a business development company pursuant to section 54 of that Act (15 U.S.C. 80a-53).
(6) Related person has the meaning set forth in § 275.204-2(d)(7) of this title.
(7) United States has the meaning set forth in § 230.902(l) of this title.
(8) United States person means any person that is a “U.S. person” as defined in § 230.902(k) of this title, except that any discretionary account or similar account that is held for the benefit of a United States person by a dealer or other professional fiduciary is a United States person if the dealer or professional fiduciary is a related person of the investment adviser relying on this section and is not organized, incorporated, or (if an individual) resident in the United States.
Bart Mallon, Esq. is a hedge fund attorney and works with a variety of managers to hedge funds, private equity funds and venture capital funds. He can be reached directly at 415-868-5345.