On January 18, 2012, the SEC released a No-Action letter addressed to the American Bar Association, Business Law Section (the “2012 Letter”) clarifying the scope of the definition “investment adviser”1 as it applies to entities affiliated with a registered investment adviser. The SEC confirmed and expanded upon its position in the December 8, 2005 No-Action letter to the American Bar Association’s Subcommittee on Private Investment Entities (the “2005 Letter”) that certain special purpose vehicles (“SPVs”) created by a registered investment adviser are not required to separately register as an investment adviser. Such SPVs include general partners that are “related persons”2 of a registered investment adviser. In the 2012 Letter, the SEC also provides guidance that in certain circumstances in which multiple investment advisers to private funds (each a “Private Fund Adviser”) are part of a group of related advisers only one Private Fund Adviser is required to file Form ADV to register with the SEC.
SPVs Associated with a Registered Investment Adviser
An SPV created by a registered investment adviser is not required to separately register as an investment adviser with the SEC, if the following representations and undertakings are met:
(i) the Private Fund Adviser establishes the SPV to act as the private fund’s general partner or managing member;
(ii) the SPV’s formation documents designate the Private Fund Adviser to manage the private fund’s assets;
(iii) all of the investment advisory activities of the SPV are subject to the Investment Advisers Act of 1940, as amended (the “Advisers Act”) and the rules thereunder, and the SPV is subject to examination by the SEC; and
(iv) the registered investment adviser subjects the SPV, its employees and persons acting on its behalf to the registered investment adviser’s supervision and control and, therefore, the SPV, all of its employees and the persons acting on its behalf are “persons associated with”3 the registered investment adviser.
The SEC indicated that an SPV with independent directors would not be precluded from relying on the 2012 Letter and additionally, provided it met all other conditions, the SPV would not be required to register. The SEC also clarified that the relief from registration applies to registered investment advisers with multiple SPVs.
Multiple Advisers in Control Relationships
A group of related Private Fund Advisers conducting a “single advisory business” (the “Relying Advisers”) may rely on the filing made by one registered investment adviser (the “Filing Adviser”), absent other facts suggesting that they conduct different businesses. To satisfy the requirements of Form ADV while using a single registration, the Filing Adviser must file, and update as required, a single Form ADV (Parts 1 and 2) that relates to, and includes all information concerning, the Filing Adviser and each Relying Adviser (e.g., disciplinary information and ownership information on Schedules A and B), and must include this same information in any other reports or filings it must make under the Advisers Act or the rules thereunder (e.g., Form PF).
In order to rely on the filing made by one registered investment adviser for the group, a group of related Private Fund Advisers must meet the following conditions:
(i) The Filing Adviser and each Relying Adviser advise only private funds and separate account clients that are “qualified clients”4 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 “persons associated with” the Filing Adviser.
(iii) The Filing Adviser has its principal office and place of business in the United States and, therefore, all of the substantive provisions of the Advisers Act and the rules thereunder apply to the Filing Adviser’s and each Relying Adviser’s dealings with each of its clients, regardless of whether any client or the Filing Adviser or Relying Adviser providing the advice is a United States person.5
(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 Commission.
(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.
(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 this 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).”
If you have any questions concerning the foregoing, please contact your primary attorney in Seward & Kissel’s Investment Management Group.
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1 “Investment Adviser” is defined as 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 analysis or reports concerning securities.
2 The term “related person” means any advisory affiliate and any person that is under common control with the investment adviser.
3 The term “person associated with an investment adviser” means any partner, officer, or director of such investment adviser or any person directly or indirectly controlling or controlled by such investment adviser.
4 The term “qualified client” has the same meaning as in rule 205-3 under the Advisers Act.
5 The term “United States person” has the same meaning as in rule 203(m)-1 under the Advisers Act, which includes any natural person that is resident in the United States.
