Dodd-Frank Regulatory Rulemaking: Financial Reform's Second Act

    View Authors 13 August 2010

    FIVE KEY QUESTIONS For Investment Fund Sponsors, Advisors and Managers and Fund Investors

    1. What types of investment advisers who have previously not been required to register as investment advisers will now have to register with the SEC?

    The PFIAR Act eliminated the “private adviser” exemption under the Investment Advisers Act of 1940 (Advisers Act), which generally provided that if an investment adviser had fewer than 15 “clients” within a rolling 12-month period it did not have to register (in addition, an investment fund was considered a single “client” notwithstanding the number of its underlying investors). Many investment advisers, managers and fund sponsors who formerly relied on that exemption will now have to register with the SEC. Congress’ and the Administration’s goal in reforming the Advisers Act was to mandate the registration of advisers to hedge funds, but the new law will also have the effect of forcing many advisers to private equity funds, real estate funds, mezzanine funds and other private investment funds to register. Essentially, any unregistered investment adviser who has at least $150 million in assets under management will have to register with the SEC, unless they qualify for one of the exemptions enumerated in the PFIAR Act. In addition, Congress mandated that the SEC prescribe registration and examination procedures for advisers to “mid-sized” private funds by taking into account the size, governance and investment strategy of such funds to determine whether they pose systemic risk, and to prescribe registration and examination procedures for such advisers which reflect the level of systemic risk posed by their funds.