On July 1, 2010, the SEC adopted Rule 206(4)-5 (Pay to Play Rule) under one of the antifraud provisions of Investment Advisers Act of 1940 (Advisers Act).  See “How Should Hedge Fund Managers Revise Their Compliance Policies and Procedures and Marketing Practices in Light of the SEC’s New ‘Pay to Play’ Rule?,” Hedge Fund Law Report, Vol. 3, No. 30 (Jul. 30, 2010).  The Pay to Play Rule generally prohibits registered or unregistered investment advisers, including hedge fund managers, from providing advisory services for compensation to a government client (such as a public pension fund) for two years after the adviser or certain of its employees or third-party solicitors make a contribution to certain candidates or elected officials.  See “Key Elements of a Pay-to-Play Compliance Program for Hedge Fund Managers,” Hedge Fund Law Report, Vol. 3, No. 37 (Sep. 24, 2010).  Simultaneous with the adoption of the Pay to Play Rule, the SEC amended the recordkeeping rules under the Advisers Act to, as explained in the adopting release, “allow [the SEC] to examine for compliance with new rule 206(4)-5.”  On examinations, see “Legal and Practical Considerations in Connection with Mock Examinations of Hedge Fund Managers,” Hedge Fund Law Report, Vol. 4, No. 26 (Aug. 4, 2011).  While the general prohibition on pay to play practices of the Pay to Play Rule applies to registered and unregistered investment advisers, the related recordkeeping requirements only apply to registered investment advisers, as the SEC noted in footnote 405 of the adopting release.  Specifically, the SEC amended the recordkeeping rules to require registered investment advisers to maintain books and records containing lists or other records of four categories of information, each of which is described in detail in this article.  On September 12, 2011, the Investment Company Institute (ICI) – the mutual fund industry trade group – submitted a letter (Incoming Letter) to the SEC’s Division of Investment Management (Division) requesting no-action relief from specified provisions of the recordkeeping requirements related to the Pay to Play Rule.  In particular, the Incoming Letter noted that investment advisers are having difficulty complying with relevant recordkeeping requirements where the presence or identity of government plan investors in omnibus accounts cannot be reliably determined.  The ICI proposed an alternative recordkeeping regime that would address the identified transparency issues.  This article details: the four relevant recordkeeping requirements; the four prongs of the ICI’s proposed alternative recordkeeping regime, and the rationale for each; the SEC’s no-action letter; and the application of the no-action letter itself and the analysis in the letter to hedge funds and hedge fund managers.