Yes, for private investment funds, the general partner is
generally considered an investment adviser under the Investment Adviser Act.
Let's start with the definition of an investment adviser
from the Investment Advisers Act:
"any person who, for compensation, engages in the
business of advising others, either directly or through publications or
writings, as to the value of securities or as to the advisability of investing
in, purchasing, or selling securities, or who, for compensation and as part of
a regular business, issues or promulgates analyses or reports concerning
You can parse three elements out of that definition:
The first one is the easiest. I don't think you're going
to find a fund manager who is not getting paid. It may be a combination of
management fees or carried interest, but it's still compensation. You could
look at some academic arguments about who would fall in and out of the
definition, but those arguments are irrelevant to fund managers.
Advice concerning securities
If you are giving recommendations to buy or sell, then
you are giving advice. In addition, if you are telling people when to switch
between different investments or how to select investment advisers then you are
giving advice. The fund manager is making the decision about what to buy, sell
and finance so the fund manager is giving advice. [I'm writing about the
"securities" side in another post.]
In the business
Lastly, you need to be "in the business" of giving
advice. That's going to rule out your shoeshine boy, but clearly fund managers
are in the business of giving advice. Again, there are some academic questions
that could make this prong of discussion interesting. But for a fund manager,
it's very straightforward.
It's not just me making this interpretation. The Second
Circuit answered this question in 1978. [See: Abrahamson v. Fleschner, 568 F.2d 862 (2d Cir. 1977)
, overruled in part on other grounds by Transamerica Mortgage Advisors, Inc.
v. Lewis, 444 U.S. 11 (1979)] "These provisions reflect the fact that many
investment advisers 'advise' their customers by exercising control over what
purchases and sales are made with their clients' funds."
There are six exclusions in the definition of the
"Investment Adviser" [202(a)(11)]but
they are inapplicable to most fund managers:
That means fund managers are typically going to be
considered to investment advisers. That also means that they may have to
register with the SEC, unless there is an exemption from registration. Up until
the Dodd-Frank Act, there was the 15
client exemption. That's gone.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.
He's a manager! Adviser at the same time!....