Many private equity fund advisers currently rely on the “private adviser” exemption from registration on the federal level, which applies where the
adviser has fewer than 15 clients and does not hold itself out to the public as an adviser. Because each private equity fund usually counts as one
client, a private equity fund manager can have up to 14 funds and still use this exemption at the federal level. Dodd-Frank repeals the private adviser
exemption under the Investment Advisers Act of 1940 (Advisers Act) effective July 21, 2011, and in its place adds several new exemptions, but not one
for private equity fund advisers.
On Nov. 19, 2010, the SEC proposed the rules which would implement new Dodd-Frank exemptions which would require Advisers Act registration for managers
of most private equity firms with assets under management of $150 million or more. Click here for an explanation of the SEC's proposed exemptions, and
here for an explanation of the impact of the SEC's proposals on offshore
managers of private funds. Congress is now considering legislation which would provide a specific exemption from Advisers Act registration for
managers of private equity funds. If this legislation is enacted, the SEC would specify the types of funds that would qualify for this exemption.
On May 3-4, 2011, this legislation – the Small Business Capital Access and Job Preservation Act – was approved by the House Financial Services Capital
Markets Subcommittee and was referred to the full committee together with six other bills. These other bills include provisions that would repeal or
amend several Dodd-Frank sections, and some of them are more controversial than this legislation.
The Senate bill which went to conference and resulted in Dodd-Frank included an exemption for private equity fund managers, so if the legislation
passes the House, it might get a favorable Senate reception. However, the legislation probably will have a better chance in the House if it is not
linked to the other bills which were the subject of the Subcommittee action on May 3-4. Click
here for more information on this legislation.
Implementation of the new Dodd-Frank adviser regulations will likely be delayed until the first quarter of 2012, according to the SEC. Click
here for an explanation of this delay. This delay would provide more time for passage of this legislation.
Private Equity Practice
McGuireWoods' Private Equity Practice Group is dedicated to keeping clients
advised of new legislative and business developments as they occur. If you have any questions regarding these issues, contact your primary
McGuireWoods lawyer, or any of the authors.