Compliance dates for the new Dodd-Frank adviser regulations will likely be delayed until the first quarter of 2012, according to the SEC. Dodd-Frank requires that the SEC complete rulemaking concerning these provisions by July 21, 2011. In a letter posted on the SEC website, Robert E. Plaze, associate director of the SEC’s Division of Investment Management, says that he anticipates the SEC will complete its rulemaking on time, but will consider additional time for compliance.
Private Fund Managers
Dodd-Frank makes a number of changes in the regulation of investment advisers at the federal level. Many private fund managers have relied on the exemption for advisers to fewer than 15 clients who do not hold themselves out to the public as being investment advisers (Private Adviser Exemption). Dodd-Frank eliminates the Private Adviser Exemption effective July 21, 2011, and replaces it with several new exemptions including:
- An exemption for advisers solely to private funds with assets under management in the United States of less than $150 million.
- An exemption for advisers solely to venture capital funds.
- An exemption to advisers solely to small business investment companies.
- An exemption for offshore advisers who don’t have an office in the United States, have fewer than 15 U.S. clients and investors in private funds, and less than $25 million in assets under management attributable to those clients and investors and don’t hold themselves out in the United States as investment advisers.
The SEC has proposed rules to implement these new exemptions. Please click here for an explanation of those proposals, and here for an explanation of their impact on offshore advisers. The SEC has received comments but has not yet issued final rules. Plaze states that the SEC anticipates completing the final rules by July 21, 2011, as required by Dodd-Frank but will consider extending the compliance date for these new rules until the first quarter of 2012.
Dodd-Frank also changes the division of jurisdiction between the SEC and the states for regulation of advisers having assets under management between $25 million and $100 million (Mid-Sized Advisers). With certain exceptions, Mid-Sized Advisers currently registered at the federal level will need to transition to state registration. Plaze’s letter states that the reprogramming of the system used for adviser filings needed to accomplish this transition will take until the end of the year.
Accordingly, Plaze expects the SEC will consider extending the date by which Mid-Sized Advisers are required to report their eligibility for continued registration with the SEC, also until the first quarter of 2012. An adviser no longer eligible for federal registration would have a grace period to transition to state registration.
Dodd-Frank does not include a specific exemption for managers of private equity funds. Legislation has been introduced which would exempt managers of private equity funds from the federal adviser registration requirements, but the legislation’s prospects are uncertain. Click here for a brief explanation of this proposed legislation. On April 4, 2011, this legislation was referred to the House Subcommittee on Capital Markets.
Extension of Compliance Dates
Plaze’s letter is not an SEC action. However, based on the letter, it is very likely that the compliance dates discussed above will be delayed until next year.
McGuireWoods’ 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 attorney at McGuireWoods LLP, or the individuals listed. This alert was authored by David Pankey.