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Private Fund Investment Advisers Registration Act of 2010

August 06, 2010

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was signed into law. The Dodd-Frank Act codifies the Private Fund Investment Advisers Registration Act of 2010 (the "Registration Act"), which dramatically changes the regulatory landscape for investment advisers to private funds and modifies registration requirements and exemptions under the Investment Advisers Act of 1940 (the "Advisers Act"). The Registration Act will become effective on July 21, 2011, one year after its enactment. The specific changes contained in the Registration Act include the following:

  • Elimination of private adviser registration exemption. The private adviser exemption under Section 203(b)(3) of the Advisers Act, which provides an exemption from registration for advisers with fewer than 15 clients, has been repealed in its entirety. This is the exemption private fund advisers historically relied on. The elimination of this exemption will require private fund advisers to register with the SEC unless another exemption is available. Several new exemptions have been authorized, including an exemption for a "foreign private adviser".
  • Exemption for private fund advisers with less than $150 million of assets under management. The SEC is to provide an exemption from registration to any investment adviser who acts solely as an adviser to private funds and has less than $150 million of assets under management in the United States. Any adviser relying on this exemption will still be subject to SEC recordkeeping and reporting requirements. The Registration Act requires the SEC to adopt rules to implement this exemption, but there is no prescribed time frame for when it must do so.
  • Exemptions for advisers to venture capital funds, small business investment companies and family offices. Advisers to venture capital funds and small business investment companies have been exempted from the registration requirements under the Advisers Act. In addition, family offices have been excluded from the definition of investment adviser. The SEC has been directed to issue final rules defining "venture capital fund" (within one year) and "family office" (no time frame has been established). Advisers to private equity funds will be subject to the same registration provisions as private fund managers.
  • Shift in federal and state responsibilities. The threshold for federal registration of an adviser under Section 203A of the Advisers Act has been raised from $25 million to $100 million in assets under management, leaving to the states the exclusive responsibility of supervising advisers with less than $100 million in assets under management.

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