New Rules, As Proposed.   First, it should be noted that Dodd-Frank acknowledged the SEC's limited examination resources - and its new responsibilities for private fund advisers - by reallocating regulatory responsibility for smaller investment advisers to the state securities authorities.

1.  Private Fund Advisers and Commission Registration.   Dodd-Frank eliminated the private adviser exemption - which heretofore exempted advisers with fewer than 15 clients, where each fund was counted as a single client, without regard to each investor in such fund.  Consequently, many previously unregistered advisers, particularly those to hedge funds and private equity funds, will have to register with the Commission and be subject to its regulatory oversight, rules and examination.

2.  Reporting Requirements for Hedge Fund and Other Investment Advisers Background.  To enhance its ability to oversee investment advisers to private funds, the SEC may require advisers to provide more information than they currently provide about the private funds they manage. As proposed, advisers to private funds would have to provide:

• Basic organizational and operational information about the funds they manage - e.g., amount of assets held by the fund, types of investors in the fund, adviser's services to the fund.
• Identification of 5 categories of "gatekeepers" that perform critical roles for advisers and the private funds they manage - i.e., auditors, prime brokers, custodians, administrators, marketers.

3.  More Information About Advisory Business.   In addition, the SEC would amend the adviser registration form to require all registered advisers to provide more information about their advisory business, including information about:

• Types of clients they advise, their employees, and their advisory activities.
• Their business practices that may present significant COI's (conflicts of interest) - e.g., use of affiliated brokers, soft dollar arrangements, compensation for client referrals.
• Additional information about their non-advisory activities and their financial industry affiliations.

4.  Reporting Requirements for Exempted Advisers.   While many private fund advisers will be required to register, some of those advisers may not need to - if they can rely on one of 3 new exemptions from registration, including exemptions for:

• Advisers solely to venture capital funds.
• Advisers solely to private funds with less than $150mn in AUM (assets under management) in the U.S.
• Certain foreign advisers without a place of business in the U.S.

For further details, click onto:   [SEC PR 10-228, 'IA Oversight', 11/19]  and  [SEC Proposed Rule Release IA-3110, 11/19 - 181pp].