New SEC registration requirements for U.S. and foreign investment advisers and private fund managers post Dodd-Frank
If you’re just starting out as a U.S. investment adviser or private fund manager, this is what you need to know about SEC registration. The long-standing 15-client test was repealed in July of last year by Dodd-Frank in favor of a tiered, state and federal registration framework based on so-called ‘regulatory assets under management,’ which include uncalled capital commitments, leverage and other accrued but unpaid liabilities (RAUM).
The new SEC registration regime distinguishes between investment advisers who manage any separate accounts and those who manage only hedge funds, private equity funds and funds of funds. Advisers who manage only venture capital funds or single family offices are exempt from SEC registration. Foreign investment advisers and private fund managers with U.S. clients are now also confronted with new SEC registration requirements.
The new SEC registration regime distinguishes between investment advisers who manage any separate accounts and those who manage only hedge funds, private equity funds and funds of funds.
Any separate accounts
Those of you with total RAUMs of less than $25 million who manage any money in the form of separate accounts are exempt from SEC registration. You may nevertheless have to notify or register with the securities authority of the state in which you maintain your principal office and abide by its advisory regulations.
If you are managing separate accounts (or a combination of separate accounts and private funds) with more than $25 million but less than $100 million in total RAUM, you must register with your state securities authority unless (i) you are headquartered in a state like New York or Wyoming* which doesn’t regulate investment advisers or (ii) your advisory activities would require your registering in 15 or more states. In the first of those cases, you must register with the SEC; in the second, you have the option of registering with the SEC in order to avoid the burden of multiple state registrations.
If your RAUM is above $100 million and includes any separate accounts, you must register with the SEC.
Hedge, private equity and funds of funds only
For those of you who manage only hedge funds, private equity funds or funds of funds with aggregate RAUMs of less than $150 million, you can claim the so-called Private Fund Adviser Exemption and file only Part 1A of Form ADV with the SEC (which must be updated at least annually), but you are not required to submit to full-fledged SEC registration. If your total RAUM in private funds is $150 million or more, you are required to register with the SEC. In both cases, you may also have to notify the securities authority of the state in which you are based.
Foreign investment advisers
Foreign investment advisers are exempt from SEC registration only if they have no U.S. offices, have fewer than 15 U.S. clients (counting both separate account owners and private fund investors), manage less than $25 million for their U.S. clients, do not hold themselves out publicly as investment advisers in the U.S. and do not advise U.S. mutual funds, unit investment trusts or business development companies.
If a foreign investment adviser’s only U.S. clients are private funds and the total RAUM it manages from its U.S. offices is less than $150 million, it can claim the Private Fund Adviser Exemption from SEC registration regardless of the types of clients it has or the amount of assets it manages outside of the U.S. Foreign advisers claiming this exemption have the same SEC filing requirements as U.S. advisers claiming it.
*New York State investment advisers must register with the SEC and notify the Office of the Attorney General in New York when their RAUMs in separate accounts (or a combination of separate accounts and private funds) reach $25 million. Wyoming-based advisers who intend to manage any separate accounts must register with the SEC and notify the Wyoming Securities Division as soon as they are formed.