The SEC recently proposed several amendments to the Investment Advisers Act of 1940, commonly referred to as the “Advisers Act.” These amendments specifically focus on rule 203(l)-1 and rule 203(m)-1, the definition of a venture capital fund, and the private fund adviser exemption. They are designed to better reflect changes from the Fixing America’s Surface Transportation Act (FAST) of 2015, which had already amended the Advisers Act.
Venture Capital Fund Amendments
Currently, most small business investment companies (SBIC) meet the Advisers Act definition of a private fund; however, they do not meet the definition of a venture capital fund, and subsequently do not qualify for the venture capital fund adviser exemption. The SEC is proposing to amend this definition to include SPICs so they can be exempt under the venture capital fund adviser exemption. The SEC believes that this revised definition will be more consistent with the existing rule, and that it will allow SBICs to meet the exemption.
If implemented, any adviser to SBICs relying on this exemption would be required to submit Form ADV reports to the commission, which are the current requirement for any advisers who rely on this exemption. Learn more about our EDGAR filing services.
Private Fund Adviser Exemption Amendments
The private fund adviser exemption currently allows the SEC to provide exemptions to any investment advisor who advises private funds that have less than $150 million in assets in the United States. While advisers who meet this requirement are exempt from registration, they are still considered “exempt reporting advisers,” and subsequently must maintain any records that the SEC requires for public interest or investor protection.
The FAST Act previously amended the private fund adviser exemption to now require private fund advisors to exclude SBIC assets to better calculate private fund assets. The SEC is proposing to amend the Advisers Act rule to now exclude an adviser’s regulatory assets. They believe that this amendment will help advisers with private funds and that SBICs could rely on the private fund adviser exemption since they would not meet the $150 million registration threshold. This amendment would still require advisers to submit reports to the SEC as exempt reporting advisers.
Costs and Benefits
These amendments could potentially reduce reporting requirements and therefore increase the number of advisers in the market. This could increase the competition in the market, which would reduce profits for advisers as they would subsequently lower their advisory fees. However, this could also result in more efficient investment decisions and more accurate market prices. The addition of more investment advisors could further increase the aggregate amount of capital investment. Because there are both costs and benefits to these amendments, the SEC is unsure of the exact impact they will have.
Request for Comments
The SEC is currently welcoming comments on these proposed amendments, provided that they are received on or before June 8th. All comments should refer to File Number S7-05-17, and will be posted publicly. Comments may be received via the SEC’s comment form, an email, the Federal eRulemaking Portal, or mail.