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Impact of the Private Fund Investment Advisers Registration Act on Non-U.S. Private Fund Managers

By Jason E. Brown and Lisa M. Ragosta
Posted: 3rd August 2011 11:56

Non-U.S. private fund managers traditionally had been exempted from registration as investment advisers with the U.S. Securities and Exchange Commission (“SEC”) due to the “private adviser exemption” under Section 203(b)(3) of the Investment Advisers Act of 1940 (the “Advisers Act”).  Under this exemption, an adviser was exempt from registration if the adviser did not hold itself out to the public as an investment adviser, had fewer than 15 clients (non-U.S. private funds did not count as a client for this purpose), and was not an adviser to a U.S. registered investment company.  On July 21, 2010, the Private Fund Investment Advisers Registration Act of 2010 (the “Registration Act”), part of the Dodd-Frank Act, was signed into law, which eliminated the private adviser exemption effective July 21, 2011.   However, the Registration Act also created three new exemptions from registration, which required SEC rulemaking to implement.  On June 22, 2011, the SEC adopted final rules implementing these three registration exemptions, implementing new reporting requirements for certain advisers meeting these exemptions (as well as currently registered advisers) and extending the registration deadline to March 30, 2012 for those advisers currently relying on 203(b)(3). Consequently, non-U.S. managers of private funds with U.S. investors will have to register under the Advisers Act by March 30, 2012 unless they fit into one of the three new exemptions created by the Registration Act and rules adopted by the SEC thereunder.  Those exemptions, as well as certain other matters relevant to non-U.S. private fund managers, are summarized below.

Exemptions from the Advisers Act Registration Requirements

Venture Capital Fund Exemption

The first exemption from registration is for advisers to solely venture capital funds. Although this exemption could be relied on by non-U.S. venture capital fund managers, the SEC’s definition of a venture capital fund is very narrow.  Amongst other things, with certain limited exceptions, a venture capital fund must invest at least 80% of its aggregate capital commitments (other than certain short-term debt instruments) in equity securities directly acquired from qualifying portfolio companies (in short, companies that are not publicly traded that meet certain other requirements), and the fund cannot be leveraged, cannot offer redemption rights and must hold itself out as pursuing a venture capital strategy.  Consequently, most non-U.S. private fund managers will likely seek to rely on one of the other two exemptions from SEC registration.

Private Fund Adviser Exemption

Non-U.S. advisers (defined as those with their principal office and place of business outside of the U.S.) are exempt from registration if: (i) the adviser has no client that is a U.S. person, except for one or more private funds; and (ii) all assets managed by the adviser from a place of business in the U.S. are attributable solely to private fund assets, the total value of which is less than $150 million. SEC rules define both private fund and the methodology for calculating assets under management.

Consequently, most non-U.S. private fund managers with no U.S. operations will not need to register under the Advisers Act, regardless of the amount of private fund assets under management attributable to U.S. investors, unless they have U.S. clients that are not private funds.  Non-U.S. advisers exempt from registration pursuant to the private fund adviser exemption will still be subject to reporting requirements and examination (see “Reporting Requirements for Exempt Reporting Advisers” below for more information) and, together with advisers relying on the venture capital fund exemption, are known as “exempt reporting advisers.”

An adviser relying on the private fund adviser exemption will have 90 days after it reports in its annual report to the SEC that it has $150 million or more of private fund assets managed from the U.S. (and therefore becomes ineligible to rely on the private fund adviser exemption) to register as an investment adviser with the SEC.  This 90 day grace period is only available to advisers that have complied with all applicable SEC reporting requirements prior to registration.

Foreign Private Adviser Exemption

A separate exemption is available for a “foreign private adviser,” defined as an investment adviser that: (i) has no place of business in the U.S.; (ii) has fewer than 15 clients and investors in the U.S. in private funds advised by it; (iii) has less than $25 million in assets under management attributable to U.S. clients and investors in the U.S. in private funds advised by it; and (iv) neither holds itself out to U.S. investors as an investment adviser, nor acts as an investment adviser to any U.S. registered investment company or any company that has elected to be a business development company.  Rules adopted by the SEC provide additional guidance on many of the terms in the definition of foreign private adviser above. Unlike non-U.S. advisers relying on the private fund adviser exemption, non-U.S. advisers relying on the exemption for foreign private advisers (i) are not given a grace period in which to register with the SEC after becoming ineligible to rely on this exemption due to an increase in the value of assets attributable to, or number of, U.S. clients and investors in the U.S., and (ii) do not need to comply with the reporting and examination requirements discussed in “Reporting Requirements for Exempt Reporting Advisers” below.

Effects of the Registration Act on Exempt Reporting Advisers, U.S. Registered Advisers and Non-U.S. Affiliates of U.S. Registered Advisers

Requirements for Exempt Reporting Advisers 

Exempt reporting advisers (i.e., advisers relying on the private fund adviser exemption or the venture capital fund exemption) are required to complete certain items in Form ADV (the form used by investment advisers to register with the SEC), namely, basic identifying information and information regarding other business activities engaged in by the adviser, financial industry affiliations, the adviser’s control persons, and disciplinary history for the adviser and its employees.  Exempt reporting advisers must also provide certain information regarding each private fund managed.  Exempt reporting advisers are required to file an initial Form ADV with the SEC between January 1, 2012 and March 30, 2012, and to update this information at least annually.  As such, exempt reporting advisers will need to solicit disciplinary history information from their personnel and controlled companies in advance of the March 30, 2012 filing deadline in order to be in a position to make a complete and accurate filing by such date. 

Exempt reporting advisers will also be subject to examination by the SEC.  The SEC has provided guidance, however, that it does not intend to perform routine examinations of exempt reporting advisers, but may perform examinations in circumstances under which it determines that such examinations are appropriate, including where it believes there are indications of wrongdoing.

Registered Non-U.S. Advisers and Non-U.S. Affiliates of U.S. Registered Investment Advisers

In the release accompanying the final rules, the SEC clarified that non-U.S. affiliates of U.S. registered investment advisers can continue to rely on so-called "Unibanco" arrangements, based on the Unibanco series of SEC no-action letters, to avoid registering with the SEC as investment advisers.  It is also worth nothing that the Registration Act and the rules thereunder created additional obligations for non-U.S. advisers that are already registered.  A full analysis of Unibanco and applicable requirements for registered advisers is, by its nature, complex and idiosyncratic, and therefore beyond the scope of this article.


The adoption of the Registration Act and the final rules implementing the Registration Act is a very significant regulatory development for non-U.S. advisers to private funds with U.S. investors. Such managers will need to confirm whether they must register or whether they can seek to rely on one of the three new exemptions. Additionally, managers that satisfy an exemption, but are exempt reporting advisers, will be subject to additional requirements, including reporting obligations.


Jason E. Brown is a partner at Ropes & Gray LLP. He has extensive experience representing investment advisers to private equity funds, hedge funds, mutual funds, separate accounts and commodity pools. He has assisted over 20 leading private equity firms in registering as investment advisers with the SEC and developing Advisers Act compliance programmes, and has assisted numerous non-US firms in analysing their regulatory obligations under US law. In addition, Jason has advised a wide variety of US and non-US investment advisers on Advisers Act, Investment Company Act and Commodity Exchange Act matters as new funds or products are launched, compliance questions arise, new rules are adopted, or SEC or NFA inspections occur. He also focuses on the representation of other investment management clients, including open-ended and closed-end mutual funds and their directors. Jason is a graduate of Harvard Law School.  Jason can be contacted on +1 617 951 7942 or by email at

Lisa M. Ragosta joined Ropes & Gray LLP as an associate in the Corporate Department with an emphasis on Investment Management. She is a graduate of the University of Virginia School of Law.  Lisa can be contacted on + 1 617 235 4929 or by email at


This information should not be construed as legal advice or a legal opinion on any specific facts or circumstances. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult your attorney concerning any particular situation and any specific legal question you may have.


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