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by Marc Mehrespand and Joshua O'Melia
Various companion releases
implementing various provisions of the Dodd-Frank Act. Form ADV amendments,
Rule 206(4)-5, and registration requirements for private funds.
In much anticipated companion
releases implementing various provisions of the Dodd-Frank Act, the
U.S. Securities and Exchange Commission (the "SEC") adopted several
new rules under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"). Among
other matters, the new rules implement the registration requirements of
advisers to hedge funds and other private funds with the SEC, enunciate new
reporting requirements for such advisers, as well as reporting requirements for
"exempted advisers" ("Exempt Reporting Advisers"),
reallocate regulatory responsibility and define exemptions for advisers to
venture capital funds, private fund advisers with less than $150 million under
management and foreign private advisers.
The SEC also took the opportunity in the Adopting Releases to adopt substantial
changes to Part 1A and Schedule D of Form ADV, requiring advisers to provide
additional information on three areas of their operations:
In sum, the changes dramatically increase the amount of information that
SEC-registered investment advisers - and particularly advisers to private funds
- must disclose on their Form ADV.
The SEC also adopted certain amendments to the "pay to play rule,"
Private Fund Reporting (Item 7.B. of Form ADV, Part 1A)
The SEC made significant changes to Item 7.B. of Part 1A of Form ADV, which now
requires an adviser to complete Section 7.B. of Schedule D for each
"private fund" that
the adviser (and not a related person) advises. As a result, the SEC no longer
will require an adviser to report on funds that are advised by affiliates,
which likely will reduce, in some cases, numerous pages of unilluminating
disclosure. Second, to avoid multiple reporting for each private fund, Item 7
permits a subadviser to provide less information about a private fund for which
an adviser already is reporting on its Schedule D, and permits an adviser
sponsoring a master-feeder arrangement to submit a single Schedule D for the
master fund and all of the feeder funds that otherwise would be submitting
substantially identical data. Finally, the SEC is modifying Item 7, as
proposed, to permit an adviser with a principal office and place of business
outside the United States to omit a Schedule D for a private fund that is not
organized in the United States and that is not offered to, or owned by, United
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Marc Mehrespand is a partner at K&L Gates LLP. He represents
investment advisers, banks, broker-dealers and other participants in the
financial services industry in a practice that encompasses the major federal
securities and commodities laws as well as general corporate law. In particular,
Mr. Mehrespand regularly works with clients to form and operate U.S. and
offshore private investment funds.Joshua
O'Melia is an associate at K&L Gates LLP. He concentrates his work in
the investment management practice, with a particular emphasis on hedge funds,
private equity funds and compliance-related matters involving investment
advisers and broker-dealers.