New Exemptions from Registration

The legislation creates five new narrow exemptions from registration and increases the threshold amount that triggers mandatory SEC registration for state-registered advisers. The new exemptions and the increased threshold are designed to exempt smaller hedge fund and private equity advisers from SEC registration, allowing the SEC to concentrate on private fund advisers perceived to have a greater impact on investors and markets.

Venture Capital Advisers (§ 407)

The legislation provides a carve-out for advisers to venture capital funds. The SEC is charged with defining “venture capital fund” within one year after the enactment of the legislation. However, venture capital fund advisers who satisfy the exemption must comply with additional SEC reporting and recordkeeping requirements. Those reports and records will include information that the SEC believes is useful in protecting investors and promoting the public interest.

Foreign Private Advisers (§§ 402 & 403)

The legislation exempts certain foreign private advisers from registration. To qualify, advisers must meet all the following criteria:

  • have no place of business in the United States;
  • have fewer than 15 US-based clients and investors in private funds at any time;
  • have assets under management attributable to US-based clients and investors in private funds of less than $25 million or such higher amount as the SEC, by rule, deems appropriate; and
  • not hold themselves out to the public in the US as an investment adviser.

Many advisers to foreign-based private funds also serving US clients and investors will be unable to meet this somewhat narrow exemption.

Advisers to Small Business Investment Companies (§ 403)

An adviser that advises only “small business investment companies” licensed under the Small Business Investment Act of 1958, other than an entity that has elected to be regulated or is regulated as a business development company pursuant to the Investment Company Act, is exempt from registration.

Family Offices (§ 409)

An adviser that constitutes a “family office” is similarly exempt from registration. The legislation requires the SEC to define family office, and the definition is likely to be consistent with the SEC’s previous policy of granting exceptions under the Advisers Act for investment advice provided to one or more members of a single family.

De Minimis Assets (§ 408)

The legislation provides a de minimis exemption from SEC registration for managers that advise one or more private funds and have assets under management of less than $150 million in the United States. Under this exemption, advisers to smaller funds will not have to register, but will still be required to maintain records and file annual or other reports as determined by the SEC.