SEC Staff Issues Guidance on Relief From Registration for Certain Affiliates of Registered Advisers

On Jan. 18, 2012, the Securities and Exchange Commission’s Division of Investment Management issued a no-action letter (the “No-Action Letter”) offering interpretive guidance on various issues regarding the registration under the Advisers Act of certain affiliates of SEC-registered investment advisers.

Special Purpose Vehicles and Adviser Registration

The No-Action Letter confirms earlier guidance provided by the SEC staff with respect to certain special purpose vehicles (“SPVs”) created by SEC-registered advisers. In a 2005 no-action letter,¹ the staff took the position that it would not recommend enforcement action against an SEC-registered adviser and an SPV if the SPV did not register separately as an investment adviser with the SEC, so long as the following conditions were met:

(i) the investment adviser to a private fund establishes the SPV to act as the private fund’s general partner or managing member;

(ii) the SPV’s formation documents designate the investment adviser to manage the private fund’s assets;

(iii) all of the investment advisory activities of the SPV are subject to the Advisers Act and the rules there under, and the SPV is subject to examination by the SEC;² and

(iv) the registered adviser subjects the SPV, its employees and persons acting on its behalf to its supervision and control and, thus, the SPV and such employees and persons acting on its behalf fall within the definition of “persons associated with” the registered adviser (as defined in section 202(a)(17) of the Advisers Act).

Subject to these conditions, the SPV would look to and essentially rely upon the registered adviser’s registration with the SEC in not submitting a separate Form ADV.

The No-Action Letter clarifies that the staff’s position in the 2005 no-action letter is not limited to a registered adviser with a single SPV. Accordingly, a registered adviser may have multiple SPVs that may be eligible for this relief. The No-Action Letter further provides that an SPV that has directors who are independent of the registered adviser and, therefore, do not fall within the definition of “persons associated with” the registered adviser, may be eligible for the relief, provided that the SPV and the registered adviser otherwise meet the foregoing conditions.

Control Affiliates and Adviser Registration

The No-Action Letter expands the scope of relief from separate registration for certain control affiliates of a registered adviser. In particular, the staff provided that an investment adviser may file (or amend) a single Form ADV on behalf of itself and each other adviser that it controls or is under common control with it,³ where the filing adviser and each relying adviser collectively conduct a “single advisory business.” For these purposes, absent other facts suggesting that they conduct different business, a filing adviser and one or more relying advisers would, in the staff’s view, collectively conduct a “single advisory business” under the following circumstances:

(i) The filing adviser and each relying adviser advise only private funds and separate account clients that are “qualified clients” (as defined in Advisers Act rule 205-3) and are otherwise eligible to invest in the private funds advised by the filing adviser or a relying adviser and whose accounts pursue investment objectives and strategies that are substantially similar or otherwise related to those private funds.

(ii) Each relying adviser, its employees and the persons acting on its behalf are subject to the filing adviser’s supervision and control and, therefore, are “persons associated with” the filing adviser.

(iii) The filing adviser has its principle office and place of business in the U.S., and, therefore, the filing adviser’s and each relying adviser’s dealings with each of their respective clients, regardless of whether any client or the filing adviser or relying adviser providing the advice is a U.S. person, are subject to the Advisers Act and the rules there under.

(iv) The advisory activities of each relying adviser are subject to the Advisers Act and the rules thereunder, and each relying adviser is subject to examination by the SEC.⁴

(v) The filing adviser and each relying adviser operate under a single code of ethics adopted in accordance with Advisers Act rule 204A-1 and a single set of written policies and procedures adopted and implemented in accordance with Advisers Act rule 206(4)-(7) and administered by a single chief compliance officer in accordance with that rule.⁵

(vi) The filing adviser discloses in its Form ADV (Miscellaneous Section of Schedule D) that it and its relying advisers are together filing a single Form ADV in reliance on the position expressed in the No-Action Letter and identifies each relying adviser by completing a separate Section 1.B., Schedule D, of Form ADV for each relying adviser and identifying it as such by including the notation “(relying adviser).”

The staff noted that an investment adviser that is unable to meet the foregoing conditions may nonetheless be “operationally integrated” with one or more related advisers, which could require each such adviser to register separately with the SEC.

The No-Action Letter may be found here.

 

For assistance, please contact the following lawyers in the Financial Services Area: 

Investment Management Partners:

Marion Giliberti Barish
marion.barish@bingham.com, 617.951.8801

David C. Boch
david.boch@bingham.com, 617.951.8485

Lea Anne Copenhefer
leaanne.copenhefer@bingham.com, 617.951.8515

Steven M. Giordano
steven.giordano@bingham.com, 617.951.8205

Michael Glazer
michael.glazer@bingham.com, 213.680.6646

Anne-Marie Godfrey
anne-marie.godfrey@bingham.com, +852.3182.1705

Richard A. Goldman
rich.goldman@bingham.com, 617.951.8851

Thomas John Holton
john.holton@bingham.com, 617.951.8587

Barry N. Hurwitz
barry.hurwitz@bingham.com, 617.951.8267

Roger P. Joseph, Practice Group Leader; Co-chair, Financial Services Area
roger.joseph@bingham.com, 617.951.8247

Amy Natterson Kroll
amy.kroll@bingham.com, 202.373.6118

Michael P. O’Brien
michael.obrien@bingham.com, 617.951.8302

Nancy M. Persechino
nancy.persechino@bingham.com, 202.373.6185

Paul B. Raymond
paul.raymond@bingham.com, 617.951.8567

Toby R. Serkin
toby.serkin@bingham.com, 617.951.8760

L. Kevin Sheridan Jr.
kevin.sheridan@bingham.com, 212.705.7738

Edwin E. Smith, Co-chair, Financial Services Area
edwin.smith@bingham.com, 617.951.8615

Joshua B. Sterling
joshua.sterling@bingham.com, 202.373.6556

Stephen C. Tirrell
stephen.tirrell@bingham.com, 617.951.8833

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¹See American Bar Association Subcommittee on Private Investment Entities, SEC Staff Letter (Dec. 8, 2005).
²The No-Action Letter notes that it is the staff’s view that such an SPV is an investment adviser registered with the SEC, and, as such, is required to comply with all of the provisions of the Advisers Act and the rules thereunder that apply to registered advisers.
³The staff noted that the filing adviser and each relying adviser must not be prohibited from registering with the SEC by section 203A of the Advisers Act.
⁴The No-Action Letter notes that it is the staff’s view that each relying adviser is an investment adviser registered with the SEC, and, as such, is required to comply with all of the provisions of the Advisers Act and the rules thereunder that apply to registered advisers.
⁵The No-Action Letter notes, however, that, while the code of ethics and written policies and procedures must be administered as if the filing adviser and each relying adviser are part of a single entity, they may take into account, for example, that a relying adviser operating in a different jurisdiction may have obligations that differ from the filing adviser or another relying adviser.