Historically, many advisers to hedge funds and other private funds have relied on an exemption contained in Section 203(b)(3) of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), which generally exempts from registration any investment adviser who during the course of the preceding twelve months has had fewer than fifteen clients, and who does not hold itself out generally to the public as an investment adviser (the “Private Adviser Exemption”). Title IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) repeals the Private Adviser Exemption effective as of July 21, 2011, and replaces it with several narrower exemptions, as discussed below.
On June 22, 2011, pursuant to Title IV of the Dodd-Frank Act, the Securities and Exchange Commission (the “SEC”) adopted final rules to implement expanded registration and disclosure requirements for advisers to hedge funds and other private funds under the Advisers Act. The final rules modify certain provisions the SEC proposed in October and November 2010 and include, among other items, a definition of “venture capital fund” for purposes of the venture capital registration exemption, guidelines for determining an adviser’s eligibility under the $150 million private fund adviser registration exemption, definitions of a number of terms related to the foreign private adviser registration exemption and increased disclosure requirements for advisers to private funds. In addition, the SEC issued a final rule defining the term “family office” for purposes of the exception from the definition of “investment adviser” mandated by Section 409 of the Dodd-Frank Act. Finally, the SEC confirmed that it would delay the effective date of the registration requirement for investment advisers required to register with the SEC as a result of Dodd-Frank Act amendments to the Advisers Act until March 30, 2012.