On June 22, 2011, the Securities and Exchange Commission (SEC) adopted final rules implementing the portion of Dodd-Frank that requires advisers to private equity funds to register with the SEC. As discussed in numerous Calfee First Alert bulletins throughout the past year, on July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Title IV of Dodd-Frank is called the Private Fund Investment Advisers Registration Act of 2010 (Registration Act). The Registration Act affects all private funds that claim exemption from the Investment Company Act of 1940 under Section 3(c)(1) or 3(c)(7) of that statute. This includes practically all hedge, leveraged-buyout, venture capital, real estate, mezzanine-debt and distressed-debt funds, as well as funds-of-funds.
The final rules amended the Advisers Act to exempt advisers from registration under the Investment Advisers Act if such adviser (1) acts solely as an adviser to private funds (including any vehicle exempt under Section 3 of the Investment Company Act, not just under Section 3(c)(1) and 3(c)(7)); and (2) has assets under management in the United States of less than $150 million. Before this new “Private Adviser” exemption, many firms that manage private equity funds had been exempt from registration under the Advisers Act because they managed fewer than 15 private funds (each fund was counted as one client); Dodd-Frank eliminated this exemption.
However, the final rules require advisers that are exempt from registration because of the new Private Adviser exemption to complete a limited Form ADV and file such form with the SEC. This report filing must occur by February 14, 2012, through the Investment Adviser Registration Depository (IARD) in order to meet the March 30, 2012, deadline (it can take up to 45 days to be approved).
This limited Form ADV will require exempt advisers to provide the following general information:
- Adviser Identification. This includes basic identifying information for the adviser and the identity of its owners and affiliates.
- Private fund data and conflicts of interest. An exempt reporting adviser must provide information about the private funds the adviser manages and about other business activities that the adviser and its affiliates are engaged in that present conflicts of interest that may suggest significant risk to clients.
- Disciplinary information. An exempt reporting adviser must also disclose the disciplinary history (if any) of the adviser and its employees that may reflect on the integrity of the firm.
These reports will be publicly available on the SEC website.
It is clear Dodd-Frank will have a significant impact on all advisers to private equity funds - not just those that will be required to register. We will continue to monitor the rulemaking process and report on significant legislative and regulatory developments affecting private equity funds.