Dodd-Frank Eliminates Private Adviser Exemption
The recently approved Dodd-Frank financial legislation bill eliminates an exclusion from the Investment Advisers Act for investment advisers that have fewer than 15 clients and who do not hold themselves out to the public as investment advisers, thereby requiring registration for small advisers and private fund advisers. Additionally, the legislation allows the SEC to request extensive information about private funds (i.e. funds not required to register under the Investment Company Act per Sections 3(c)(1) or 3(c)(7)) including assets, trading and investment positions, valuation, side letters, and trading practices. Although the legislation exempts private fund advisers with less than $150 Million in assets under management and those that solely manage “venture capital funds” (to be defined by the SEC), such advisers are still subject to the Act, including SEC-mandated record-keeping and, presumably, other provisions of the Act such as the anti-fraud rules. The legislation also increases the threshold for SEC registration vs. state registration to $100 Million from $25 Million and narrows the “accredited investor” definition.