Private Fund Registration with SEC

Our services range from assistance with SEC registration to varying degrees of outsourced compliance assistance. Depending on current staffing levels of private funds, we can provide services ranging from regulatory guidance to complete outsourced compliance assistance by ex-SEC regulators.

Private Fund Registration with SEC

Private Fund Investment Advisers Registration Act of 2010

 

On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act, which includes in Title IV, the Private Fund Investment Advisers Registration Act of 2010 (the “Registration Act”).  The Registration Act, among other things, amends the Investment Advisers Act of 1940, (the “Advisers Act”) and has significant implications for advisers to both U.S. and non‐U.S. domiciled private funds.

The Registration Act eliminates the exemption from registration with the Securities and Exchange Commission (“SEC”) for private fund advisers who have fewer than 15 clients and do not hold themselves out to the public as investment advisers.   Consequently, unless an investment adviser to a private fund qualifies for another exemption, they will be required to register with the SEC.

Implications

The Registration Act requires advisers to quickly become familiar with the Advisers Act. Important considerations include, but are not limited to:

Compliance ‐ new registrants would be required to adhere to the Advisers Act Rule 206(4)‐7 known as the Compliance Rule which requires establishing written Policies and Procedures and appointing a competent Chief Compliance Officer (“CCO “). Key to establishing an adequate compliance program is evaluating and properly documenting existing and potential conflicts of interest. The SEC wants assurance that advisers have a mechanism in place to identify risks, conflicts of interest and have established a system of internal controls to mitigate those risks.

Disclosure ‐ Registrants are subject to the Advisers Act disclosure rules requiring the preparation and filing of Form ADV Part I and Part II. See the Form ADV section for a detailed review of Form ADV.

Books and Records –  In addition to following the books and records requirements applicable to all registered advisers, the books and records of private fund advised by investment advisers to private funds are now deemed to be books and records of the Adviser.  The SEC will now have the authority to examine these books and records.

Performance Fees – Registrants must follow Rule 205‐3(d)(1) of the Advisers Act which limits the ability to charge performance fees. Performance based compensation can be paid if the adviser’s clients are “qualified clients”. If you manage a 3c(1) fund and charge a performance fee you will need to determine if your clients meet the “qualified client” threshold.

Investment Advisory Contracts – With respect to the anti-fraud provisions of the Advisers Act, the SEC cannot define the term “client” to include an investor in a private fund managed by an investment adviser, provided that the adviser has entered into an advisory contract with such private fund.  Many private funds may not have investment advisory agreements separate, and apart, from the limited partnership or limited liability company agreements. We suggest that private fund managers review these arrangements and enter into investment advisory agreements, as necessary and appropriate.

Our Services

SEC3 has assisted numerous private funds successfully register with the SEC, develop and implement a manageable, yet robust compliance program and ensure staff is properly trained as to what is expected of both the firm and each staff member with regards to SEC registration and the firm’s compliance program.  Our services range from assistance with SEC registration to varying degrees of outsourced compliance assistance.  Depending on current staffing levels of private funds, we can provide services ranging from regulatory guidance to complete outsourced compliance assistance by ex-SEC regulators.

While the compliance program required by the SEC may be new to many private fund advisers, it does not have to be overwhelming. When properly managed, the registration process can be straightforward and the ongoing compliance requirements manageable.