As discussed previously in our July 15, 2011 memorandum, the SEC has imposed a Form ADV Part 1A filing obligation on advisers who are relying on the private fund adviser exemption or the venture capital adviser exemption (collectively, “Exempt Reporting Advisers”) from SEC registration. An adviser with its principal place of business in the U.S. may rely on the private fund adviser exemption if the adviser (i) acts solely as an investment adviser to one or more “qualifying private funds”¹ and (ii) manages private fund assets² of less than $150 million. An adviser with its principal place of business outside of the U.S. may rely on the private fund adviser exemption if (i) the adviser has no client that is a U.S. Person (as defined in Regulation S under the Securities Act of 1933) except for one or more “qualifying private funds” and (ii) all assets managed by the adviser from a place of business in the U.S. are solely attributable to private fund assets, the total value of which is less than $150 million.

Information that Exempt Reporting Advisers Must Report on Form ADV Part 1A

Exempt Reporting Advisers are required to complete only the following parts of Form ADV Part 1A (and the corresponding sections of Schedules A, B, C and D thereto):

• Item 1 – Identifying Information.
• Item 2.B. – Qualification as an Exempt Reporting Adviser.
• Item 3 – Form of Organization.
• Item 6 – Other Business Activities.
• Item 7 – Financial Industry Affiliations and Private Fund Reporting. An Exempt Reporting Adviser must provide detailed information about each private fund that it advises, such as organizational, operational and investment characteristics (including gross asset value), non-identifying information about beneficial owners, and the name and certain other information about the general partners, directors and service providers.
• Item 10 – Control Persons.
• Item 11 – Disciplinary Disclosure Information.

Exempt Reporting Advisers, unlike registered advisers, are not required to complete Form ADV Part 2.

Reporting Obligations for Exempt Reporting Advisers

An Exempt Reporting Adviser must submit its initial Form ADV by March 30, 2012, provided that a new investment adviser formed after January 1, 2012 must submit its initial Form ADV within 60 days of first relying on the private fund adviser exemption or venture capital adviser exemption. Form ADV filings submitted by Exempt Reporting Advisers are deemed filed once accepted by the Investment Adviser Registration Depository (“IARD”), and will be publicly available upon being filed.3 An Exempt Reporting Adviser should evaluate whether, under state laws, it is also required to register with a state securities authority or provide such state securities authority with copies of the documents that are filed with the SEC (“Notice Filings”).

An Exempt Reporting Adviser, like a registered adviser, is required to amend its reports on Form ADV: (i) at least annually, within 90 days of the end of its fiscal year; and (ii) more frequently, if required by the instructions to Form ADV. For example, an Exempt Reporting Adviser, like a registered adviser, is required to promptly update Items 1 (Identification Information),³ (Form of Organization), and 11 (Disciplinary Information) if any such item becomes inaccurate in any way, and to promptly update Item 10 (Control Persons) if it becomes materially inaccurate.

Transition to SEC Registration for Exempt Reporting Advisers No Longer Qualifying for the Private Fund Adviser Exemption

An Exempt Reporting Adviser relying on the private fund adviser exemption must annually assess the value of the private fund assets it manages in accordance with the Form ADV instructions to determine whether it may continue to rely on the private fund adviser exemption, and must report such amount in its annual updating amendments to its Form ADV. If an Exempt Reporting Adviser reports in its annual updating amendment that it has $150 million or more of private fund assets under management, the adviser is no longer eligible for the private fund adviser exemption. An increase above $150 million of an Exempt Reporting Adviser’s private fund assets under management during a calendar year does not require the Exempt Reporting Adviser to register during such calendar year.

If an Exempt Reporting Adviser no longer qualifies for the private fund adviser exemption due to an increase in its private fund assets under management, the adviser must apply for registration with the SEC within 90 days after filing the annual updating amendment, and may continue to act as a private fund adviser during this transition period; provided that it has previously complied with all of its reporting obligations as an Exempt Reporting Adviser.

No transition period is available to an Exempt Reporting Adviser relying on the private fund adviser exemption that seeks to advise a managed account. An Exempt Reporting Adviser relying on the private fund adviser exemption must register with the SEC prior to advising any client that is not a private fund.

Recordkeeping and Examinations

The SEC has noted that Exempt Reporting Advisers will be subject to certain recordkeeping requirements to be addressed in the future. The SEC does not anticipate conducting compliance examinations of Exempt Reporting Advisers on a regular basis, although it has the power to conduct such examinations and will do so if there is some indication of wrongdoing, such as from tips or complaints. Lastly, Exempt Reporting Advisers are not required to adopt and implement a compliance manual.

If you have any questions about the reporting obligations for Exempt Reporting Advisers, please contact an attorney in the Investment Management Group at Seward & Kissel LLP.

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¹ “Qualifying Private Fund” means any private fund that is not registered under Section 8 of the Investment Company Act of 1940, as amended (“Investment Company Act”), and has not elected to be treated as a business development company pursuant to Section 54 of the Investment Company Act. An Exempt Reporting Adviser may treat as a private fund an issuer that qualifies for an exclusion from the definition of an “investment company,” as defined in Section 3 of the Investment Company Act, in addition to those provided by Section 3(c)(1) or 3(c)(7), provided that the adviser treats the issuer as a private fund under the Investment Company Act and the rules thereunder for all purposes.

² “Private fund assets” mean the investment adviser’s assets under management attributable to Qualifying Private Funds.

³ In order to submit Form ADV through the IARD, Exempt Reporting Advisers must first establish an IARD user account and deposit funds into its financial account in order to cover an initial set-up fee and any fees associated with state Notice Filings or state registrations.