Happy 2013 to clients and friends of Jones Day! We wish
you a happy, healthy, and prosperous new year.
Of course, a new year brings not only (the potential for keeping)
New Year's resolutions, but also a new set of obligations and
undertakings for many investment advisers. We have outlined
in Part I herein some of these obligations for exempt reporting
advisers (i.e., those relying on the private fund exemption or the
venture capital exemption) and, in Part II, some obligations for
investment advisers that are registered with the U.S. Securities
and Exchange Commission (the
"SEC"). In Part III, we address
certain requirements and undertakings that may be relevant for any
investment adviser -- whether registered, filing as an exempt
reporting adviser, or neither.
Part I : Annual Obligations Applicable to Exempt Reporting
Advisers1
Annual Form ADV Update
Each exempt reporting adviser is required to update its Form ADV
Part 1 within 90 days of the end of its fiscal year. In 2013
(a non-leap year), this deadline is April 1 (as March 31 falls on a
Sunday) for advisers with December 31 fiscal year-ends.
TIP: You should ensure that your IARD account is
adequately funded ($150 for exempt reporting advisers, plus any
additional amount(s) for newly required state notice
filings2) well in advance of the filing deadline.
Part II : Annual Obligations Applicable to Registered Investment
Advisers
Annual Form ADV Update
Each registered investment adviser is required to update its Form
ADV (Parts 1 and 2A) within 90 days of the end of its fiscal
year. In 2013 (a non-leap year), this deadline is April 1 (as
March 31 falls on a Sunday) for advisers with December 31 fiscal
year-ends.
Unlike the Form ADV Part 2A (the
"brochure"), the Form ADV Part 2B (the
"brochure supplement") is not required
to be filed with the SEC or delivered annually to clients (however,
the brochure supplement must be updated and delivered to clients
should there be material changes to any disciplinary
information).
TIP: You should ensure that your IARD account is
adequately funded (generally $225 for registered investment
advisers, plus any additional amount(s) for newly required state
notice filings3) well in advance of the filing
deadline.
Annual Delivery of Form ADV Part 2
A registered investment adviser must, within 120 days of the end
of its fiscal year, deliver to each client either (a) a free
updated brochure that either includes a summary of material changes
or is accompanied by a summary of material changes, or (b) a
summary of material changes that includes an offer to provide a
copy of the updated brochure and information on how a client may
obtain the brochure.4
TIP: You should review your compliance
manual to confirm whether it requires you to take the approach in
(a) or (b) above and whether, in respect of any private investment
funds that you advise, you must make such an annual delivery only
to your "clients" (e.g., the private investment funds
that you advise) or also to the investors in those
funds.
Form PF
Investment advisers to "hedge funds," "private
equity funds," and/or "liquidity funds" (as those
terms are defined in Form PF) that meet the Form PF filing
thresholds (but that were not required to file the Form PF in 2012)
must make their initial filings in 2013. The frequency and
the timing of the Form PF filings are based on the type of funds
managed by the investment adviser, the amount of the investment
adviser's assets under management in those funds and the date
of the investment adviser's fiscal year-end.
See Jones Day's November 2011 publication for further
information regarding Form PF, available at:
http://www.jonesday.com/sec-adopts-new-risk-reporting-requirements-for-certain-registered--investment-advisers-to-private-funds-form-pf-11-04-2011/.
TIP: Many private investment funds that may not
typically be considered "hedge funds" (for example, real
estate funds) may actually qualify as "hedge funds" under
the Form PF definition of "hedge fund" depending upon
their level and type of borrowing and short selling. (See
the Form PF at http://www.sec.gov/rules/final/2011/ia-3308-formpf.pdf
(page 57) for the definition of a "hedge
fund".
Compliance Review
Registered investment advisers are required to annually perform
and document an annual review of their compliance policies and
procedures to ascertain their effectiveness under the Advisers
Act.
TIP: Make sure that any revisions to your
compliance policies and procedures are reflected in your Form ADV
Part 2 and/or offering documents, if applicable.
Distribution of Privacy Policy, Proxy Notice, and Code of
Ethics
Each registered investment adviser must annually distribute its
privacy policy, its current code of ethics (if distribution is
required by the investment adviser's compliance manual), and
information as to how to obtain proxy vote records.
TIP: You should refer to your compliance manual
to determine who must receive this information/documentation (for
example, whether it requires you to distribute your annual privacy
notice to all investors or just natural person investors).
Distribution of Annual Audited Financial Statements
If an investment adviser uses the audited financial statement
exception to the surprise examination requirements under the
Custody Rule in respect of the private funds that it manages (and
those funds have December 31 fiscal year-ends), the investment
adviser should mark July 1 (for fund of funds, as June 29 falls on
a Saturday) or April 30 (for all other funds) on its compliance
calendar as the deadline for distributing 2012 fiscal year audited
financial statements to fund investors.
TIP: If you take advantage of the audited
financial statement exception, make sure that you satisfy all
requirements of that exception, such as the requirement that the
accountant performing the annual audit of the fund be registered
with and subject to regular inspection by the Public Company
Accounting Oversight Board. For further information on the
audited financial statement exception (and the Custody Rule
generally), please refer to the SEC's FAQ on the Custody Rule,
available at
http://www.sec.gov/divisions/investment/custody_faq_030510.htm.
Part III: Annual Obligations and Undertakings Potentially
Applicable to any Investment Adviser
Review of and Update to Offering Materials
To ensure compliance with federal and state securities laws
(anti-fraud laws in particular), it is a good practice for an
investment adviser to periodically review and update the offering
documents for its funds that are currently being offered. In
the context of such a private investment fund, among the types of
changes for which an invested adviser may want to consider whether
an update is necessary are modifications to investment strategy,
instruments in which the fund may invest, service providers to the
fund, risk factors related to market conditions, conflicts of
interest, and applicable legal, tax, and regulatory matters.
TIP: Make sure that your subscription documents
reflect the Dodd-Frank-based adjustments to the accredited investor
and qualified client standards.
Lobbyist Registration Requirements
Any investment adviser that solicits monies from public pension
plans may be required to make filings in certain jurisdictions
under those jurisdictions' lobbying laws. Many
jurisdictions require annual (New York City) or biannual
(California) registration of lobbyists and lobbyist
agents.
TIP: Investment advisers should be aware that the
definition of "lobbyist" in a jurisdiction (such as a
state, city or municipality) in which they—or their
agents—solicit public pension plans as clients or investors
may have been revised to explicitly include placement agents (which
in turn may trigger a registration requirement). It is
helpful to consult with the relevant laws and regulations regarding
lobbyist registration requirements, as lobbying registration forms
may not contain the most updated information regarding registration
requirements.
New Issues Certifications
If a fund may purchase "new issues," its broker (or, for
fund of funds that invest in funds investing in new issues, the
underlying fund(s)) will likely request that the fund complete an
annual certification (certifying whether the fund is a restricted
person under the Financial Industry Regulatory Authority
("FINRA") Rule 5130 and/or Rule 5131). In order to
complete that certification, the investment adviser to that fund
will need to confirm that there has been no change to the
restricted status of its investors.
TIP: Make sure that any new issues questionnaire
in the subscription documents for the funds that you manage has
been updated to cover Rule 5131 and that you have received
representations from existing investors as to their respective
statuses under Rules 5130 and 5131. Be aware that if you fail
to respond to a request for annual certification, the broker or
underlying fund may deem you to have represented that you are a
restricted person under Rules 5130 and 5131.
Form D Filings
Annual electronic Form D renewal filings for each issuer of
securities in a continuous offering is required by the SEC and
certain states.5
TIP: A mandatory capital commitment call
for a private fund does not constitute a new offering but is deemed
to have been made as part of the original offering, so no new Form
D filing is required.
If a continuous offering has in fact been terminated, in order to
reflect that fact, an investment adviser may want to consider
filing a final amended Form D with the SEC and with those states
that require notification that sales will no longer be made in that
state.
Blue Sky and World Sky Laws
Investment advisers should make sure that they have maintained and
updated a record of the state and country of residence of clients
and fund investors and that any required blue and world sky filings
have been made.
TIP: Many blue sky filings must be renewed on a
periodic basis (for example, annually).
CFTC Rule 4.13(a)(3) Reaffirmation
Investment advisers which have filed a notice with the National
Futures Association ("NFA") to claim
their U.S. Commodity Futures Trading Commission ("CFTC")
Rule 4.13(a)(3) exemption should be aware that their eligibility
must be electronically reaffirmed with NFA, generally not later
than 30 days after calendar year-end (i.e., January
30).
TIP: In 2013 only, firms
will have 60 days after December 31, 2012 (i.e., March 1, 2013) to
provide the NFA with the applicable notice of exemption.
Schedules 13D and 13G
Schedule 13G filings must be updated within 45 days of the end of
each calendar year (February 14), unless there is no change to any
of the information reported in the previous filing (except the
holder's percentage ownership due solely to a change in the
number of outstanding shares).
Schedule 13D filings must be amended "promptly" upon the
occurrence of any "material changes."
TIP: Consider whether you may be subject to
any reporting obligations, or potential short-swing profit
liability, under Section 16 of the U.S. Securities Exchange Act of
1934, as amended.
Form 13F
Institutional investment advisers with investment discretion over
$100 million of certain equity securities ("Section 13(f)
securities") must file quarterly reports on Form 13F (within
45 days of the end of each calendar quarter). The next
quarterly filing deadline is February 14.
TIP: The official list of current and past
Section 13(f) securities is available at http://www.sec.gov/divisions/investment/13flists.htm.
Form 13H
Annual amendments for "large traders" (persons effecting
transactions in certain securities in amounts equal to 2 million
shares or $20 million in one calendar day or 20 million shares or
$200 million in one calendar month) are due within 45 days of the
end of each calendar year (February 14).
TIP: If any of the information contained in a
Form 13H filing becomes inaccurate for any reason, a large trader
must make an amended filing no later than the end of the calendar
quarter in which the information became stale. If a large
trader files an amended Form 13H to reflect changes that occured
during the fourth calendar quarter, the large trader is still
required to file the mandatory annual updated Form 13H.
Footnotes
1 Exempt reporting advisers should be aware of obligations under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act") to, at a minimum (a) establish and maintain appropriate written policies designed to prevent the misuse of material nonpublic information, and (b) have and enforce policies and procedures to comply with the Advisers Act's "pay to play" rule. See Jones Day's February 2012 publication for further information regarding exempt reporting advisers, available athttp://www.jonesday.com/exempt_reporting_advisers/ . All web sites herein last visited on January 18, 2013.
2 The state notice filings are made through an investment adviser's IARD renewal account.
3 The state notice filings are made through an investment adviser's IARD renewal account
4 Advisers may deliver their brochures electronically–see SEC interpretive guidance on delivering documents electronically, available athttp://www.sec.gov/rules/concept/33-7288.txt .
5 Form D must also be amended (for any offering) to correct a material mistake of fact or error in the previously filed notice and, subject to certain exceptions, to reflect a change in the information provided in the previously filed notice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.