The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

Articles By Topic

By Topic: Foreign Private Advisers

  • From Vol. 4 No.23 (Jul. 8, 2011)

    Recent No-Action Letter Suggests That the SEC Will Not Require Registration by a U.S. “Captive” Investment Advisory Subsidiary of a Foreign Insurance Company

    In a letter dated June 30, 2011, the SEC’s Division of Investment Management (Division) confirmed that it would not recommend enforcement action to the SEC if the wholly-owned U.S. asset management subsidiary of a Japanese insurance company did not register with the SEC as an investment adviser.  For hedge fund managers, there are two potentially interesting aspects of this no-action letter, and one aspect of the no-action letter that limits its application.  The two potentially interesting aspects of the no-action letter are: First, it is one of the few pieces of authority, outside of rule releases, dealing with the real world implications of the elimination of the private adviser exemption by the Dodd-Frank Act.  (This elimination will happen automatically as of July 21, 2011, though the registration due date has been delayed to March 30, 2012.)  Second, at a broad level, it deals with registration questions in the context of global affiliate relationships – an area fraught with ambiguity, and one on which hedge fund industry participants are eager for more SEC guidance.  See “Impact of the Foreign Private Adviser Exemption and the Private Fund Adviser Exemption on the U.S. Activities of Non-U.S. Hedge Fund Managers,” The Hedge Fund Law Report, Vol. 4, No. 16 (May 13, 2011).  However, unfortunately for those seeking guidance, the SEC did not focus on either of the foregoing two topics in its analysis.  Rather, the primary basis for the SEC’s grant of no-action relief, and the focus of its analysis, was more straightforward and less generalizable.

    Read Full Article …
  • From Vol. 4 No.21 (Jun. 23, 2011)

    SEC Delays Registration Deadline for Hedge Fund Advisers, and Clarifies the Scope and Limits of Registration Exemptions for Private Fund Advisers, Foreign Private Advisers and Family Offices

    At an open meeting held on June 22, 2011, the Securities and Exchange Commission adopted and amended rules that will directly affect the registration, reporting and disclosure obligations of U.S. and non-U.S. hedge fund managers.  While the texts of most of those rules or rule amendments remain to be published as of this writing, comments by SEC commissioners at the open meeting outlined the general scope of the final rules and amendments.  Of particular relevance to hedge fund managers, the SEC addressed the following topics at the open meeting: delay of registration and reporting deadlines; who may and must register with the SEC and the states based on assets under management; the private fund adviser exemption; the foreign private adviser exemption; continuing relevance of the Unibanco no-action letter for global hedge fund sub-­advisory relationships; filing, recordkeeping and examination obligations of exempt reporting advisers; and the exemption from registration for family offices.  This article offers more detail on the SEC’s statements on each of the foregoing topics at the open meeting.

    Read Full Article …
  • From Vol. 4 No.16 (May 13, 2011)

    Impact of the Foreign Private Adviser Exemption and the Private Fund Adviser Exemption on the U.S. Activities of Non-U.S. Hedge Fund Managers

    Passage of the Dodd-Frank Act and relevant SEC rulemaking has changed the regulatory landscape for non-U.S. hedge fund managers that have or plan to establish an advisory presence in the U.S. or that have or plan to target U.S. investors.  Generally – and despite references to “international comity” in one of the relevant proposed rule releases – the Dodd-Frank Act has increased the regulatory burden on non-U.S. hedge fund managers wishing to access the U.S. market.  Or, put another way, Dodd-Frank has narrowed considerably the range of conduct in which non-U.S. managers may engage without getting caught in the purview of U.S. investment adviser registration, or many of its substantive burdens.  This article provides detailed synopses of the relevant provisions of the foreign private adviser exemption and the private fund adviser exemption, focusing in particular on: rules relating to counting clients and investors; measuring “regulatory assets under management”; definitions of “place of business,” “in the United States” and other relevant terms; and recordkeeping and reporting obligations and examination exposure of “exempt reporting advisers.”  This article concludes by discussing how the exemptions may impact U.S. activities typically engaged in by non-U.S. hedge fund managers, such as marketing to U.S. tax-exempt entities and sourcing U.S. investment opportunities.

    Read Full Article …
  • From Vol. 4 No.11 (Apr. 1, 2011)

    Application of Brochure Delivery and Public Filing Requirements of New Form ADV to Offshore and Domestic Hedge Fund Managers

    Many hedge fund managers that previously were not required to register with the SEC as investment advisers will be required to register by July 21, 2011 – that is, in just under four months – unless the SEC extends the registration deadline.  Rule 203-1 under the Investment Advisers Act of 1940 (Advisers Act) currently provides that to apply for registration with the SEC as an investment adviser, a hedge fund manager must complete Form ADV, file Part 1A of Form ADV and file the brochure(s) required by Part 2A of Form ADV electronically with the Investment Adviser Registration Depository (IARD).  Last July, the SEC finalized amendments to Part 2 of Form ADV and related rules under the Advisers Act.  Those amendments were long in the making – a decade, by some counts – and they have changed Part 2 significantly.  Most notably, Part 2 is now entirely narrative, publicly filed and deeper and broader in terms of the categories of required disclosure (including disciplinary history).  So, hedge fund managers will have to register as investment advisers and registered investment advisers must file Form ADV, Part 2.  Therefore, registered hedge fund managers will have to file Form ADV, Part 2.  For managers, this has been an expensive syllogism.  Many have hired compliance consultants with the goal of saying no more and no less than is required in their Part 2s.  Recently, the staff of the SEC’s Division of Investment Management (Division) offered assistance in this collective benchmarking effort by publishing “Staff Responses to Questions About Part 2 of Form ADV” (Staff Responses).  The Staff Responses include a series of commonly asked questions and answers to those questions.  But the questions are broad and the answers are terse, in some cases, limited to a single, oracular word.  While better than no statement from the Division, the Staff Responses raise as many questions as they answer.  In particular, the Staff Responses say nothing about the background and context of the answers; provide no guidance on the interaction among and application of the answers; and fail to highlight the extent to which certain answers render others largely moot.  This article seeks to fill in the blanks left by the Staff Responses.  It does so by discussing: the legal and regulatory authority supporting some of the more relevant answers; where those answers fit into the more general patchwork of hedge fund regulation; the interaction among the answers; and the application of the answers to offshore advisers to offshore hedge funds.  The article also offers guidance on implementing certain answers and highlights what certain of the answers do not cover.

    Read Full Article …
  • From Vol. 3 No.33 (Aug. 20, 2010)

    Consequences for Global Hedge Fund Managers of the “Foreign Private Adviser” Exemption Included in the Dodd-Frank Act

    The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank or the Act), enacted on July 21, 2010, contains a general rule with respect to private fund adviser registration, and exemptions from that rule.  The general rule is that private fund advisers, such as hedge fund advisers, must register as investment advisers with the U.S. Securities and Exchange Commission (SEC).  The exemptions from that rule provide that certain categories of private fund advisers are not required to register.  Exempted advisers include those that act as advisers solely to venture capital funds or small business investment companies, family offices, private fund managers with less than $150 million in assets under management (AUM) in the U.S. and so-called “foreign private advisers.”  However, although styled a “limited exemption,” the narrowness of the foreign private adviser exemption may expand the range of non-U.S. hedge fund managers required to register with the SEC and broaden the SEC’s regulatory jurisdiction.  This article examines in detail the foreign private adviser exemption and its implications for global hedge fund managers.  In particular, this article: reviews the definition of “foreign private adviser” under Dodd-Frank; offers practitioner insight on how certain of the key concepts in the definition have historically been understood and are likely to be construed by the SEC; discusses the interaction between the foreign private adviser exemption and the exemption for private fund managers with less than $150 million in AUM; analyzes past SEC practice and precedent with respect to global sub-adviser and affiliate arrangements, including a discussion of a key no-action letter; discusses the SEC’s “registration lite” regime for non-U.S. managers of offshore funds with U.S. investors, as explained by the agency in the release accompanying the subsequently-vacated 2004 hedge fund adviser registration rule; explains the three ways in which non-U.S. hedge fund managers that are not eligible for the foreign private adviser exemption may nonetheless avoid registration; identifies the consequences to non-U.S. hedge fund managers who are not eligible for the foreign private adviser exemption and who nonetheless elect to remain in the U.S. market; and concludes with a discussion of the possibility that the narrowness of the foreign private adviser exemption may engender retaliatory protectionist moves by the European Union on hedge fund regulation, or at least may undermine the credibility of any U.S. objections to protectionist provisions in the EU’s Alternative Investment Fund Manager Directive.

    Read Full Article …