Advisers to Private Equity Funds Face SEC Registration

June 21, 2010

Under a compromise struck between the United States Senate and House of Representatives, many advisers to private equity funds will be required to register with the SEC.

On June 15, 2010, the conference committee seeking to reconcile the House and Senate versions of the financial reform bill struck the Senate exemption from registration for investment advisers to private equity funds. As noted in our June 14, 2010 alert, the Senate bill, unlike the House bill, contained an exemption for advisers to private equity funds. Many private equity fund advisers will become subject to the registration and regulatory requirements of the Investment Advisers Act of 1940.

The exemptions from registration for advisers to “venture capital funds,” as that term may be defined by the SEC, and advisers to small business investment companies remain in the bill. The exemption for foreign private advisers also remains in the bill, and the conferees have agreed to the definition of “foreign private adviser” as contained in the Senate bill. Please see our June 14, 2010 alert for a discussion of this definition.

The committee also agreed on a provision of the House bill to require the SEC to issue a rule exempting from registration any investment adviser that acts solely as an adviser to private funds and has cumulative assets under management in the U.S. of less than $150 million. Given the $150 million threshold, this provision is likely to provide exemption from registration for advisers of smaller hedge and private equity funds. Such advisers will be subject to certain recordkeeping and reporting requirements as determined by the SEC, and will need to consider whether they are required to register under applicable state laws.

These provisions of the bill are subject to further modifications and amendments before the bill is finalized. We will continue to monitor the committee's activities closely.

For assistance, please contact the following lawyers:

Frederick F. Eisenbiegler, Partner, Banking and Leveraged Finance, 212.705.7745

Thomas John Holton, Partner, Investment Management, 617.951.8587

Amy Natterson Kroll, Partner, Broker-Dealer Group, 202.373.6118

David C. Boch, Partner, Broker-Dealer Group, 617.951.8485

Paul B. Raymond, Partner, Investment Management, 617.951.8567 

Roger P. Joseph, Practice Group Leader, Investment Management; Co-chair, Financial Services Area, 617.951.8247

Edwin E. Smith, Partner, Financial Restructuring; Co-chair, Financial Services Area, 617.951.8615

Timothy P. Burke, Practice Group Leader, Broker-Dealer Group; Co-chair, Financial Services Area, 617.951.8620

This article was originally published by Bingham McCutchen LLP.