Many private equity fund advisers currently rely on the “private adviser” exemption from registration on the federal level, which applies where the adviser has fewer than 15 clients and does not hold itself out to the public as an adviser. Because each private equity fund usually counts as one client, a private equity fund manager can have up to 14 funds and still use this exemption at the federal level. Dodd-Frank repeals the private adviser exemption under the Investment Advisers Act of 1940 (Advisers Act) effective July 21, 2011, and in its place adds several new exemptions, but not one for private equity fund advisers.

On Nov. 19, 2010, the SEC proposed the rules which would implement new Dodd-Frank exemptions which would require Advisers Act registration for managers of most private equity firms with assets under management of $150 million or more. Click here for an explanation of the SEC's proposed exemptions, and here for an explanation of the impact of the SEC's proposals on offshore managers of private funds. Congress is now considering legislation which would provide a specific exemption from Advisers Act registration for managers of private equity funds. If this legislation is enacted, the SEC would specify the types of funds that would qualify for this exemption.

On May 3-4, 2011, this legislation – the Small Business Capital Access and Job Preservation Act – was approved by the House Financial Services Capital Markets Subcommittee and was referred to the full committee together with six other bills. These other bills include provisions that would repeal or amend several Dodd-Frank sections, and some of them are more controversial than this legislation.

The Senate bill which went to conference and resulted in Dodd-Frank included an exemption for private equity fund managers, so if the legislation passes the House, it might get a favorable Senate reception. However, the legislation probably will have a better chance in the House if it is not linked to the other bills which were the subject of the Subcommittee action on May 3-4. Click here for more information on this legislation.

Implementation of the new Dodd-Frank adviser regulations will likely be delayed until the first quarter of 2012, according to the SEC. Click here for an explanation of this delay. This delay would provide more time for passage of this legislation.