The SEC has published its proposed preliminary rules to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that, among other things, (i) impose certain reporting requirements on hedge fund and private equity fund advisers, (ii) require limited reporting by advisers that are exempt from SEC registration and (iii) clarify the exemptions to investment adviser registration for venture capital funds, foreign private advisers and private fund advisers with less than $150 million in assets under management in the U.S.

The proposed rules will be subject to public comment before they are finally adopted. Comments on the proposals should be received by the SEC within 45 days after publication in the Federal Register.

Reporting Requirements for Hedge Funds and Private Equity Fund Advisers

Hedge fund and private equity fund managers required to register with the SEC under Dodd-Frank would have to provide basic organizational and operational information about funds that they manage, as well as information about the auditors, prime brokers, custodians, administrators and marketers (referred to as “gatekeepers”) providing services to the manager and the funds. Additionally, all registered advisers will be required to provide more information about their advisory business, including information about clients, employees, advisory activities, and business practices that could present conflicts of interest.

Exempted Advisers

The Dodd-Frank Act eliminated the exemption from registration for private advisers with fewer than 15 clients and created three new exemptions for venture capital fund advisers, private fund advisers with less than $150 million in assets under management in the U.S., and foreign advisers. In addition to describing these new exemptions in detail, the proposed rules narrowly define a “venture capital fund” as a private fund that (i) represents itself to investors as being a venture capital fund, (ii) invests in private companies to provide capital for operations or business expansion, (iii) is not leveraged and does not invest through leveraged buyout transactions, (iv) controls or otherwise provides significant managerial assistance to its portfolio companies and (v) does not offer redemption rights to its investors. Existing funds that have previously represented themselves as venture capital funds but do not otherwise meet the definition would be deemed to qualify for the exemption.

U.S. advisers that are exempt from registration would still be required to report limited information regarding the adviser, its owners and affiliates, managed funds and the disciplinary history of the adviser and its employees.