On May 20, 2010, the U.S. Senate passed comprehensive legislation designed to regulate the financial markets. This memorandum provides a brief overview of the Private Fund Investment Advisers Registration Act of 2010 (the “Act”), the provision that is most relevant to private fund advisers.

Private Fund Investment Advisers Registration Act of 2010

The Act:

• eliminates the current private adviser exemption from SEC registration for investment advisers with fewer than 15 clients (which would in effect require investment advisers with assets under management of $100 million or more to register with the SEC);
• provides a limited exemption for a “foreign private adviser” that (i) has no place of business in the U.S.; (ii) has fewer than 15 clients in the U.S.; (iii) has less than $25 million in assets under management attributable to clients in the U.S. and investors in the U.S. in private funds that it advises; and (iv) does not hold itself out to the public in the U.S. as an investment adviser, or advise an investment company registered under the Investment Company Act of 1940 or a business development company;
• provides an exemption from registration for an investment adviser to a venture capital fund and provides an exemption from both registration and reporting requirements for an investment adviser to a private equity fund (such terms to be defined by the SEC);
• excludes from the definition of investment adviser any family office (to be defined by the SEC); and
• subjects registered investment advisers to new reporting and recordkeeping requirements about the private funds that they manage, which the SEC would have the authority to share with the Financial Stability Oversight Council and other government agencies (the SEC is directed to issue rules regarding reports that must be filed with the SEC containing information necessary for the protection of investors and the assessment of systemic risk).

In December 2009, the U.S. House of Representatives passed a competing financial reform bill, the Wall Street Reform and Consumer Protection Act of 2009 (for further information regarding this bill, please see our memo dated December 17, 2009). Differences between the Senate bill and the House bill will now need to be reconciled before passage of a final financial regulatory reform bill. Seward & Kissel will be monitoring this progress and will provide updated information as it becomes available.

* * * * *

If you have any questions with respect to the foregoing, please contact your primary attorney in the Investment Management Group at Seward & Kissel LLP.