Thursday, February 09, 2012

SEC Staff 2005 NAL on Special Purpose Vehicles Created by Registered Investment Adviser Has Post-Dodd Frank Viability

The Division of Investment Management advised that a 2005 SEC staff no-action letter on the registration of a special purpose vehicle created by a registered investment adviser continues to represent the staff’s position after the Dodd-Frank Act repeal of the exemption previously provided to private fund advisers by Section 203(b)(3) of the Investment Advisers Act. The SEC has historically treated a registered adviser’s registration with the Commission as effectively covering associated persons of the adviser. (American Bar Association, Business Law Section, January 18, 2012)

In a December 8, 2005 letter addressed to the American Bar Association’s Subcommittee on Private Investment Entities, the staff took a similar approach with respect to certain special purpose vehicles created by a registered adviser. In that letter, the staff stated that it would not object if the special purpose vehicle did not separately register as an investment adviser, subject to four conditions. First, the private fund adviser establishes the special purpose vehicle to act as the fund’s general partner or managing member. Second, the special purpose vehicle’s formation documents designate the investment adviser to manage the private fund’s assets. Third, all of the investment advisory activities of the special purpose vehicle are subject to the Investment Advisers Act and the regulations adopted under it. Fourth, the special purpose vehicle is subject to SEC examination.

Having satisfied these conditions, the special purpose vehicle would look to and essentially rely upon the registered adviser’s registration with the SEC in not submitting a separate Form ADV. The staff explained that any disciplinary history that the special purpose vehicle would have been required to disclose on Form ADV, had it registered separately as an investment adviser, would be disclosed on the registered adviser’s Form ADV.

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