Hedge Fund Regulation - Investment Adviser Reporting - Comment Letters

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Dodd-Frank Timeline, Investment Adviser Reporting, Joint SEC-CFTC Rulemaking
Final Rule Issue Effective Date Compliance Date
November 16, 2011 March 31 2012 June 15, 2012*

Comment letters addressing amendments to the Investment Advisers Act of 1940.

Managed Funds Association - January 24, 2011[edit]

Rules Implementing Amendments to the Investment Advisers Act of 1940
January 24, 2011

From the comment letter:

  • "The Commission should provide additional guidance to ensure that the activities of unregistered private fund managers that must register with the Commission are not unnecessarily disrupted;
  • Private fund managers that register in advance of the Effective Date should be able to file a single, comprehensive Form ADV;
  • The calculation of an investment adviser's regulatory assets under management should continue to: (i) provide flexibility with respect to including certain assets, (ii) represent an adviser's net assets, and (iii) be based on the valuation methodology described in a private fund's offering documents;
  • Sensitive information about a private fund and its manager should only be reported to the Commission on Form ADV; and
  • Private fund managers generally should not be subject to regulations that prohibit certain types of incentive-based compensation arrangements."
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Investment Company Institute - January 24, 2011[edit]

Rules Implementing Amendments to the Investment Advisers Act of 1940
January 24, 2011

According to the comment letter, the Commission should:

  • "add a question to Form ADV requiring advisers to state whether all soft dollar benefits received qualify for the safe harbor under Section 28(e) of the Securities Exchange Act of 1934 ('Exchange Act'), but should clarify that the answer is based upon the adviser's reasonable belief and the disclosure should not be viewed as providing a legal opinion on the qualification of the soft dollar benefits;"
  • "not require advisers to quantify soft dollar benefits or list the brokers or dealers from whom it receives soft dollar benefits;"
  • use total assets from an adviser's most recent fiscal year balance sheet to "determine the universe of advisers with over $1 billion in assets for purposes of Section 956 of Dodd-Frank;"
  • "carefully consider the impact of the changes proposed in the Release and other significant changes to Form ADV, such as the recently adopted changes to Form ADV Part 2, on advisers;"
  • "address its pay-to-play concerns through less restrictive means than those proposed;"
  • "provide additional guidance with respect to the definition of 'covered associate' in the pay-to-play rule, and the term 'solicit' within that definition;"
  • "require broker-dealers and other persons subject to the Commission's jurisdiction to provide advisers and funds with the account information the adviser is required by law to have in order to comply with the Commission's pay-to-play rule;"
  • "extend the current compliance date for the third-party solicitor provisions in its pay-to-play rule if it adopts the proposed amendments in order to provide advisers with additional time to comply with the new provisions;" and
  • "adopt proposed Rule 203A-5, but only with respect to those advisers that rely upon assets under management tests to determine their registration status."
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SIFMA - January 24, 2011[edit]

Rules Implementing Amendments to the Investment Advisers Act of 1940
January 24, 2011

From the comment letter:

  • "The proposed amendment is not an adequate and appropriate substitute for the solicitation provision of the pay-to-play rule; and
  • The SEC should permit investment advisers to continue to use affiliated and other solicitors."

SIFMA embeds in its letter a chart illustrating the effects of Dodd-Frank on "affiliated" and "non-affiliated" persons and their being required to register as municipal advisers. As a part of SIFMA's suggestion that investment advisers still be allowed to use affiliated persons or other solicitors, a proposed solution is offered along with the comment that the proposed amendment should coordinate with municipal advisor rules and proposed MSRB rule G-42.

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Investment Adviser Association - January 24, 2011[edit]

Rules Implementing Amendments to the Investment Advisers Act of 1940
January 24, 2011

In the comment letter, the Investment Adviser Association suggests that advisers should should not be required by the SEC to submit information via Part 1 of Form ADV to public disclosure on the Investment Adviser Public Disclosure website for the following reasons:

  1. "Certain of the proposed disclosure regarding private funds could expose internal, sensitive, and/or confidential information if it becomes publicly available;"
  2. "The disclosure will unduly focus the attention of a firm’s non-fund adviser clients on what may be just one aspect of a firm’s business;" and
  3. "The public nature of this disclosure may lead to confusion as to what constitutes a public offering of a private fund."

The association also encourages the SEC to streamline the information collected from advisers through public disclosure and reporting regulation.

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Alternative Investment Management Association - January 24, 2011[edit]

Rules Implementing Amendments to the Investment Advisers Act of 1940
January 24, 2011

The Alternative Investment Management Association (AIMA) encourages the SEC to clarify and/or revise its reporting and public disclosure provisions as they apply to non-U.S. advisers.

AIMA comments on the following topics with regard to non-U.S. adviser reporting:

  • Foreign adviser exemption, including counting rules for investors in a private fund and place of business; and
  • Private fund adviser exemption and application for non-U.S. advisers, including clarification for provisions surrounding qualifying private funds, managed accounts, the determination of place of business, private fund assets, the calculation of the value of assets, assets managed in the U.S., the determination of a U.S. person, transition rule, the application of marketing and other rules, and requirements for exempt reporting advisers.
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APG Asset Management - January 21, 2011[edit]

Rules Implementing Amendments to the Investment Advisers Act of 1940
January 21, 2011

Katten Muchin Rosenman LLP write the comment letter on behalf of APG Asset Management US Inc.

From the comment letter:

  • (Proposed Amendment to Form ADV Instructions Requiring Inclusion of Foreign Assets) "We believe it is important to contrast the different purpose that supports a decision to allow advisers to include such assets to become eligible for SEC registration, with the effect of mandating inclusion of such assets, which would put the SEC in the position of regulating entities in which there is no U.S. interest and for which registration serves no regulatory purpose. We believe that the permissive inclusion of such assets, solely at the option of the adviser, should continue."
  • ("Engaged in the Business" Requirement) "Requiring investment advisers that manage assets for corporate affiliates to register would change long-standing interpretations issued since 1940 that such advisers are not within the intent of the definition of "investment adviser". We urge the Commission to address the question of whether and how an entity managing proprietary assets meets the threshold requirement that it is "engaged in the business" of providing investment advice."
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North American Securities Administrators Association - February 10, 2011[edit]

Rules Implementing Amendments to the Investment Advisers Act of 1940
February 10, 2011

The North American Securities Administrators Association (NASAA) suggests that:

  • if necessary, the SEC extend the timeline for the transition to state registration;
  • the SEC move forward with its proposal to provide relief to advisers currently registered with the state and may be nearing the $30 million threshold, or for newly registered advisers who have reached the $30 million threshold but have not surpassed $100 million;
  • the state threshold for SEC-registered advisers should be moved from 30 to 15, as the SEC's proposal indicates;
  • the "buffer" in rule 203A-1 should be eliminated;
  • the determination process for mid-sized advisers should be revised with the NASAA's assistance;
  • the Investment Adviser Registration Depository (IARD) system should be maintained to avoid the creation of an entire new process;
  • the SEC move forward with private fund reporting requirements;
  • the following safeguards be added to the functionality proposal for Form ADV, whereby the checking of a box would indicate that a disclosure reporting filing was made in error:
  1. "Provide instructions clarifying the narrow instances when it is appropriate to remove a DRP 'filed in error'; and
  2. Regulators should be alerted to the removal of a DRP through an amendment queue or other similar functionality in IARD;"
  • the SEC define "compensation" in its unorganized process for counting clients as a part of the national de minimis; and
  • the grandfathering provision be made less broad.
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North American Securities Administrators Association - February 10, 2011[edit]

Rules Implementing Amendments to the Investment Advisers Act of 1940
February 10, 2011

The North American Securities Administrators Association (NASAA) suggests that:

  • if necessary, the SEC extend the timeline for the transition to state registration;
  • the SEC move forward with its proposal to provide relief to advisers currently registered with the state and may be nearing the $30 million threshold, or for newly registered advisers who have reached the $30 million threshold but have not surpassed $100 million;
  • the state threshold for SEC-registered advisers should be moved from 30 to 15, as the SEC's proposal indicates;
  • the "buffer" in rule 203A-1 should be eliminated;
  • the determination process for mid-sized advisers should be revised with the NASAA's assistance;
  • the Investment Adviser Registration Depository (IARD) system should be maintained to avoid the creation of an entire new process;
  • the SEC move forward with private fund reporting requirements;
  • the following safeguards be added to the functionality proposal for Form ADV, whereby the checking of a box would indicate that a disclosure reporting filing was made in error:
  1. "Provide instructions clarifying the narrow instances when it is appropriate to remove a DRP 'filed in error'; and
  2. Regulators should be alerted to the removal of a DRP through an amendment queue or other similar functionality in IARD;"
  • the SEC define "compensation" in its unorganized process for counting clients as a part of the national de minimis; and
  • the grandfathering provision be made less broad.
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American Bar Association - January 31, 2011[edit]

Rules Implementing Amendments to the Investment Advisers Act of 1940
January 31, 2011

In the comment letter, the American Bar Association recommends:

  • a revised definition of "venture capital fund;"
  • a revised definition of "qualifying portfolio company;"
  • several issues with the foreign private adviser exemption, particularly regarding the non-exclusivity of the exemption and the $25 million threshold;
  • edits regarding "spousal equivalents," fees and double-counting clients;
  • that holders of debt securities should not be counted as investors;
  • that total return swaps by a record owner should not automatically name the securities' counterparty the beneficial owner in all cases, and that the same approach should be taken with regard to good-faith reliance transactions; and
  • that assets under management should be measured annually.

The letter also offers commentary on other topics under the private fund adviser exemption, such as U.S.-based advisers, non-U.S.-based advisers, sub-advisers and advisers to private funds in liquidation.

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Better Markets - January 24, 2011[edit]

Rules Implementing Amendments to the Investment Advisers Act of 1940
January 24, 2011

From the comment letter:

  • "In short, the Commission should expand the reporting requirements for exempt reporting advisers to include all of the information called for in the Form ADV, which will further the goals of regulatory oversight, risk assessment and public transparency."
  • "As indicated in the Release, the MSRB simply 'intends to consider' subjecting municipal advisers to similar restrictions [pay-to-play rules]. While that eventuality may come to pass, and while, in substance, the MSRB standards may ultimately be as good or better than the SEC's rule, the SEC simply cannot predicate its own rulemaking on those future uncertainties. Passively outsourcing such a key component of the pay to play rule is not acceptable and not consistent with the statutory intent of the Dodd Frank Act. The SEC must take action itself in these Proposed Rules to address this matter now."
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References[edit]

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