On August 25, 2016, the U.S. Securities and Exchange Commission (SEC)adopted numerous substantive and technical amendments to Form ADV, Part 1A, which previously had been proposed in a release dated May 20, 2015. Several of the amendments will affect how investment advisers to private investment funds file initial and annual updating amendment reports with the SEC on Form ADV. The adopting release provides that the amendments will become effective 60 days after publication in the Federal Register, and advisers will need to begin complying with the amendments on October 1, 2017.
Accommodation of Umbrella Registration for Multiple Related Advisers to Private Funds
The changes adopted by the SEC amend Form ADV to accommodate the registration of private fund advisers operating a single advisory business through multiple legal entities via the filing of a single Form ADV. By way of background, in a no-action letter dated January 18, 2012, the staff of the SEC’s Division of Investment Management provided guidance on the conditions under which the staff believed one private fund adviser (the “filing adviser”) could file a single Form ADV on behalf of itself and other advisers that were controlled by, or under common control with, the filing adviser (each, a “relying adviser”), provided that they together conducted a single advisory business (collectively an “umbrella registration”). However, to date, the method outlined in the SEC staff letter for filing an umbrella registration was limited by the fact that Form ADV was designed for a single legal entity, with a filing adviser noting the existence of one or more relying advisers in the “Miscellaneous” section of Form ADV, Schedule D.
The new amendments track the same conditions set forth in the 2012 no-action letter to assess whether an adviser can use umbrella registration. The conditions are as follows:
the filing adviser and each relying adviser advise only (i) private funds, and (ii) separately managed accounts that (a) are beneficially owned by qualified clients (as defined in Rule 205-3 under the Investment Advisers Act of 1940, as amended (Advisers Act)), (b) are otherwise eligible to invest in the private funds advised by the filing adviser or a relying adviser, and (c) pursue investment objectives and strategies that are substantially similar or otherwise related to those private funds;
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, regardless of whether any client or the filing adviser or relying adviser providing the advice is a United States person;
each relying adviser, its employees and the persons acting on its behalf, are subject to the filing adviser’s supervision and control and, therefore, they are all “persons associated with” the filing adviser (as defined in Section 202(a)(17) of the Advisers Act);
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 SEC; and
the filing adviser and each relying adviser operate under a single code of ethics under Rule 204A-1 under the Advisers Act and a single set of written policies and procedures under Rule 206(4)-(7) under the Advisers Act and administered by a single chief compliance officer in accordance with that rule.
The conditions are designed to limit eligibility for umbrella registration to multiple legal entities that operate as a single advisory business. For purposes of umbrella registration, the SEC stated that it would consider the following factors as indicia of multiple legal entities conducting a single advisory business: (i) a commonality of advisory services and clients; (ii) a consistent application of the Advisers Act and the rules thereunder to all advisers in the business; and (iii) a unified compliance program.