The SEC is implementing new exemptions from the registration requirements of the Investment Advisers Act of 1940, effective 7/21/11.  Newly adopted Rules 203(l)-1, 203(m)-1 and 202(a)(30)-1 exempts advisers to certain privately offered investment funds - venture capital funds, and private funds with less than $150 million under management in the U.S. 

SEC's New Definition of Venture Capital Fund.   As directed by Dodd-Frank, the SEC adopted a definition of “venture capital fund" - it is a private fund that:

• Invests primarily in “qualifying investments” - generally, private, operating companies that do not distribute proceeds from debt financings in exchange for the fund’s investment in the company; 
• May invest in a “basket” of non-qualifying investments of up to 20% of its committed capital;
• May hold certain short-term investments.
• Is not leveraged except for a minimal amount on a short-term basis.
• Does not offer redemption rights to its investors.
• Represents itself to investors as pursuing a venture capital strategy.

Under a grandfathering provision, funds that began raising capital by the end of 2010 and represented themselves as pursuing a venture capital strategy would generally be considered venture capital funds.  The Commission is adopting this approach because it could be difficult or impossible for advisers to conform these pre-existing funds, which generally have terms in excess of 10 years, to the new definition.

Private Fund Advisers With < $150Mn in Assets Under Management in U.S.   The SEC also is adopting a rule that would implement the new statutory exemption for private fund advisers with less than $150 million in assets under management in the United States. The rule largely tracks the provision of the statute.

For further details, go to:   [Final Rule Release IA-3222, 6/22/11]

SEC Investment Management Contacts.   Brian McLaughlin Johnson, Tram Nguyen, David Vaughan, in the Division of Investment Management:  (202) 551-6787;  <IArules@sec.gov>.