ANALYSIS: Implications For Non-U.S. Investment Advisers Of Dodd-Frank Act Provisions And Proposed SEC Rules On Registration Of Private Fund Investment Advisers
By Mark S. Bergman, Patricia Vaz de Almeida, and Philip A. Heimowitz, of Paul, Weiss, Rifkind, Wharton & Garrison LLP.
The Private Fund Investment Advisers Registration Act (the “Private Fund Legislation”) adopted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) amended various provisions of the U.S. Investment Advisers Act of 1940 (the “Advisers Act”) to impose Securities and Exchange Commission (“SEC”) registration obligations on investment advisers to hedge funds, private equity funds and other private pools of capital. The Private Fund Legislation also directed the SEC to promulgate rules in support of the new statutory provisions. On November 19, 2010, the SEC proposed new rules and rule amendments 1 under the Advisers Act (the “Proposed Rules”) to give effect to the Private Fund Legislation.
The most significant aspect of the Private Fund Legislation is the elimination of the so-called “15-client rule” (also referred to as the “private adviser exemption”) on which many advisers to private equity funds, hedge funds and other private pools of capital relied to operate without SEC registration. The 15-client rule allowed an investment adviser with fewer than 15 clients in the United States during the preceding 12-month period to operate without registering with the SEC, provided it did not hold itself out as an investment adviser to the U.S. public. At the same time, when counting clients for purposes of the private adviser exemption, an investment adviser to private pools of capital was able to treat the fund it advised as one client, rather than counting each investor in the fund as a separate client…