On January 18, 2012, the Division of Investment Management (Staff) of the Securities and Exchange Commission (SEC) issued a no-action letter reaffirming its position that certain special purpose vehicles (SPVs) created by a registered investment adviser are not required to separately register as an investment adviser (No-Action Letter).
The No-Action Letter was issued in response to correspondence by the American Bar Association's Subcommittee on Private Investment Entities, which voiced concerns regarding the ability of investment advisers to include related SPVs under a single registration, based on recent amendments to the Investment Advisers Act of 1940 (Advisers Act) pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The No-Action Letter confirms that the Dodd-Frank's repeal of the exemption previously provided by Section 203(b)(3) of the Advisers Act for private advisers with fewer than 15 clients does not change the SEC's position regarding SPVs.
A SPV created by a registered investment adviser is not required to register separately as an investment adviser with the SEC provided that the following conditions are met:
- The investment adviser to a private fund establishes the SPV to act as the private fund's general partner or managing member;
- The SPV's formation documents designate the investment adviser to manage the private fund's assets;
- All of the investment advisory activities of the SPV are subject to the Advisers Act and the rules thereunder, and the SPV is subject to examination by the SEC; and
- The registered adviser subjects the SPV, its employees and persons acting on its behalf to the registered adviser's supervision and control and, therefore, the SPV, all of its employees and the persons acting on its behalf are "persons associated with" the registered adviser (as defined in Section 202(a)(17) of the Advisers Act).
The Staff clarified that the relief is not limited to a registered adviser with a single SPV and that a registered adviser may have multiple SPVs that may be eligible for such relief. The No-Action Letter further provides that a SPV that has directors who are independent of the registered adviser and, therefore, do not fall within the definition of "persons associated with" the registered adviser, may be eligible for the relief, provided that the SPV and the registered adviser otherwise meet the above conditions.
The No-Action Letter also expands the Staff's position on investment adviser registration and the ability of affiliated advisers to rely on a single registration. The Staff would not recommend enforcement action under Section 203(a) or Section 208(d) of the Advisers Act against an investment adviser that files (or amends) a single Form ADV (Filing Adviser) on behalf of itself and every other adviser that is controlled by or under common control with the filing adviser (Relying Adviser) where the Filing Adviser and each Relying Adviser collectively conduct a single advisory business. The Filing Adviser and a Relying Adviser would be deemed to be conducting a single advisory business by meeting the following conditions:
- The Filing Adviser and each Relying Adviser advise only private funds and separate account clients that are "qualified clients" (as defined in Advisers Act Rule 205-3) and are otherwise eligible to invest in the private funds advised by the Filing Adviser or a Relying Adviser and whose accounts pursue investment objectives and strategies that are substantially similar or otherwise related to those private funds.
- Each Relying Adviser, its employees and the persons acting on its behalf are subject to the Filing Adviser's supervision and control. Therefore, each Relying Adviser, its employees and the persons acting on its behalf are "persons associated with" the Filing Adviser (as defined in Section 202(a)(17) of the Advisers Act).
- The Filing Adviser has its principal office and place of business in the United States and, therefore, all of the substantive provisions of the Advisers Act and the rules thereunder apply to the Filing Adviser's and each Relying Adviser's dealings with each of its clients.
- The advisory activities of each Relying Adviser are subject to the Advisers Act and the rules thereunder, and each Relying Adviser is subject to examination by the Commission.
- The Filing Adviser and each Relying Adviser operate under a single code of ethics adopted in accordance with Advisers Act Rule 204A-1 and a single set of written policies and procedures adopted and implemented in accordance with Advisers Act Rule 206(4)-(7), and administered by a single chief compliance officer in accordance with that rule.
- The Filing Adviser discloses in its Form ADV (Miscellaneous Section of Schedule D) that it and its Relying Advisers are together filing a single Form ADV in reliance on the position expressed in this letter and identifies each Relying Adviser by completing a separate Section 1.B., Schedule D, of Form ADV for each Relying Adviser and identifying it as such by including the notation "(relying adviser)."
The full text of the No-Action Letter may be accessed at: http://www.sec.gov/divisions/investment/noaction/2012/aba011812.htm
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