On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama. Included among its sweeping changes to the regulation of the U.S. financial markets is the Private Fund Investment Advisers Registration Act of 2010 (the "Act"),[1] which amends the Investment Advisers Act of 1940 (the "Advisers Act") to, among other things, eliminate the so-called "private adviser exemption."

Advisers to many hedge funds and private equity funds will be required to register as investment advisers with the Securities and Exchange Commission (the "SEC") no later than July 21, 2011. As a consequence of registration, the advisers will become subject to the substantive provisions of the Advisers Act, will be required to adopt compliance policies and will be subject to SEC examination.

Who Has to Register?

Investment advisers are generally required to register with the SEC unless they qualify for an exemption from registration. The Act eliminates the exemption for advisers with fewer than 15 clients but introduces new exemptions for small private fund advisers (private fund advisers with assets under management in the United States of less than $150 million), foreign private advisers, venture capital fund advisers and family offices.

Click here for a discussion of the requirement for investment advisers to register with the SEC and the limited set of exemptions from registration.

The Registration Process

Registration with the SEC is a fairly simple process and involves filing with the SEC a disclosure document (Form ADV) containing information about the adviser and its business, owners and affiliates. The disclosures made in Form ADV must satisfy the adviser’s fiduciary duty to clients to provide full and fair disclosure and are subject to the anti-fraud provisions of the Advisers Act.

Click here for information on the SEC registration process and the recently amended Form ADV.

Advisers Act Substantive Provisions; SEC Examination

By registering with the SEC, an adviser becomes subject to a range of substantive provisions of the Advisers Act, including requirements to develop, implement, update and supervise a variety of compliance policies and procedures, including a code of ethics. Implementing a compliance program is not a standard process, but rather requires customization to fit the particular business of an adviser. A registering adviser should not delay in assessing the steps to be taken to implement a compliance program and designing a plan for timely implementation.

SEC-registered advisers are required to designate a chief compliance officer and to assess the adequacy and effectiveness of its compliance policies at least annually.

Newly registering advisers become subject to periodic and "for cause" examination by the SEC, which will focus on the records of the adviser and issue deficiency letters.

Click here for a discussion of the principal regulatory consequences that follow from SEC registration.

Click here for a summary checklist of some of the key compliance obligations of SEC-registered investment advisers.