SEC Final Rule: Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers With Less Than $150 Million in Assets Under Management, and Foreign Private Advisers

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Gavel.png FINAL RULE: Registration and Reporting Exemptions approved at SEC Open Meeting, June 22, 2011
Dodd-Frank Timeline, Adviser Exemptions, SEC
Comment Deadline Final Rule Issue Effective Date
January 24, 2011 July 6, 2011 July 21, 2011

On June 22, 2011, the SEC held an open meeting concerning exemptions for advisers to venture capital funds, private advisers with less than $150 million in assets under management, and foreign private advisers under the Dodd-Frank Act. Among the topics at this meeting were the definitions of "venture capital fund," private advisers whose assets under management fall under the $150 million threshold, and non-U.S. private advisers. <ref>SEC Adopts Dodd-Frank Act Amendments to Investment Advisers Act. SEC. Retrieved on June 22, 2011.</ref>

Final Rules

Advisers solely to venture capital funds, solely to private funds with less than $150 million in assets under management in the U.S., or certain foreign advisers without a place of business in the U.S. are able to claim exemption from registration and reporting under the Dodd-Frank Act.

Under the new rule, a "venture capital fund" is defined as a private fund that:

  • "invests primarily in “qualifying investments” (generally, private, operating companies that do not distribute proceeds from debt financings in exchange for the fund’s investment in the company); may invest in a “basket” of non-qualifying investments of up to 20 percent of its committed capital; and may hold certain short-term investments;
  • is not leveraged except for a minimal amount on a short-term basis;
  • does not offer redemption rights to its investors; and
  • represents itself to investors as pursuing a venture capital strategy."

A grandfathering provision is put in place by the SEC for funds that have used venture capital strategy and have made that abundantly clear by the end of 2010. These funds are generally considered to be venture capital funds under the new rule.

A new statutory exemption is put in place by the new rule for private fund advisers with less than $150 million in assets under management in the U.S.

Foreign advisers that do not have a place of business in the U.S. are exempt if they have:

  • "less than $25 million in aggregate assets under management from U.S. clients and private fund investors; and
  • fewer than 15 U.S. clients and private fund investors."

The definition of "foreign private adviser" is also clarified by the SEC in this rule with regard to the exemption statute.



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