Monday, January 08, 2018

SEC amends Advisers Act rules to reflect FAST Act provisions

By Amy Leisinger, J.D.

The SEC has amended the definition of a venture capital fund and the private fund adviser exemption in its Investment Advisers Act rule in order to reflect changes made by the FAST Act. The FAST Act amended the exemption from investment adviser registration for any advisers to venture capital funds by deeming small business investment companies (SBICs) to be venture capital funds. The FAST Act also amended the exemption from registration for any advisers to private funds with less than $150 million in assets under management by excluding the assets of SBICs when calculating private fund assets toward the registration threshold of $150 million (Amendments to Investment Advisers Act Rules to Reflect Changes Made by the FAST Act, Release No. IA-4839, January 5, 2018).

In its May 2017 rule proposal, the SEC noted that the FAST Act does not require it to amend the rules but explained that the amendments would eliminate any confusion that may arise without the revisions. The Commission did not receive any comments specifically addressing the proposed amendments.

As amended, the definition of "venture capital fund" in Advisers Act Rule 203(l)-1 will now include SBICs, and the definition of "assets under management" for purposes of the private fund adviser exemption found in Investment Advisers Act Rule 203(m)-1 will be amended to exclude the assets of SBICs. Advisers to SBICs can now rely on three exemptions from registration—(1) the SBIC adviser exemption and advise only SBICs; (2) the venture capital fund adviser exemption and advise both SBICs and venture capital funds; or (3) the private fund adviser exemption and advise both SBICs and non-SBIC private funds, provided that the non-SBIC private funds account for less than $150 million in assets under management in the U.S.

Advisers that rely on the SBIC exemption are not subject to the Advisers Act’s reporting or recordkeeping provisions or to examination by SEC staff. Advisers that rely on the venture capital fund and private fund adviser exemptions, while exempt from registration, are considered exempt reporting advisers and must maintain records and submit reports that the SEC deems necessary. Exempt advisers are required to file a subset of the information required by Form ADV but are not subject to many of the other requirements to which registered investment advisers are subject.

The amendments will become effective 60 days following publication in the Federal Register.

The release is No. IA-4839.

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