See supra Section II.B. 80a-53)); and. The amendments to our rules, which reflect the RBIC Advisers Relief Act amendments to the Advisers Act, may affect the classes of investment advisers mentioned above, the funds they advise, and the investors in those funds. 35. Advisers Act rule 203(l)-1 currently defines the term venture capital fund as any SBIC (defined below) or any private fund that (1) represents to investors and potential investors that it pursues a venture capital strategy; (2) immediately after the acquisition of any asset, other than qualifying investments or short-term holdings, holds no more than 20 percent of the amount of the fund's aggregate capital contributions and uncalled committed capital in assets (other than short-term holdings) that are not qualifying investments, valued at cost or fair value, consistently applied by the fund; (3) does not borrow, issue debt obligations, provide guarantees or otherwise incur leverage, in excess of 15 percent of the private fund's aggregate capital contributions and uncalled committed capital, and any such borrowing, indebtedness, guarantee or leverage is for a non-renewable term of no longer than 120 calendar days, except that any guarantee by the private fund of a qualifying portfolio company's obligations up to the amount of the value of the private fund's investment in the qualifying portfolio company is not subject to the 120 calendar day limit; (4) only issues securities the terms of which do not provide a holder with any right, except in extraordinary circumstances, to withdraw, redeem or require the repurchase of such securities but may entitle holders to receive distributions made to all holders pro rata; and (5) is not registered under section 8 of the Investment Company Act, and has not elected to be treated as a business development company pursuant to section 54 of the Investment Company Act. (ii) The regulatory assets under management attributable to a private fund that is an entity described in subparagraph (A) or (B) of section 203(b)(8) of the Act (15 U.S.C. 80b-2(a)(11)(G), 80b-2(a)(11)(H), 80b-2(a)(17), 80b-3, 80b-4, 80b-Start Printed Page 137414a, 80b-6(4), 80b-6a, and 80b-11, unless otherwise noted. We cannot quantify the extent to which investors prefer to use a single adviser or the number of advisers who will expand into either RBICs or non-RBIC private funds because we do not have the information needed to assess investors' latent demand for consolidated advice services or the number of advisers that have been deterred from expanding their client bases under the baseline. This requirement does not apply, however, if the agency, for good cause, finds that the notice and public comment are impracticable, unnecessary, or contrary to the public interest. An adviser would file a full withdrawal if it was only registered with the Commission. See supra footnote 12. 10. For exempt reporting advisers that relied on the private fund adviser exemption, total private fund assets under management were approximately $3 trillion. The form enables the SEC to register investment advisers and to obtain information from and about exempt reporting advisers. Furthermore, these inconsistencies may result in private fund assets under management being calculated differently by advisers for purposes of the private fund adviser exemption, which could lead to similar advisers determining their reporting statuses differently. Advisers to RBICs could have been exempt reporting advisers by relying on the venture capital fund adviser exemption or the private fund adviser exemption, if they met applicable requirements. De Minimis Exemption. are investment advisers that are not required to register as investment advisers because they rely on certain exemptions from registration under sections 203(l) and 203(m) of the Investment Advisers Act of 1940 and related rules . This amendment is designed to reflect that an investment adviser can rely on the private fund adviser exemption without counting the assets of its private funds that are RBICs towards the $150 million threshold. See 17 CFR 275.203(l)-1 and supra footnote 13. Candidates have 150 minutes to complete the exam. https://www.rd.usda.gov/programs-services/rural-business-investment-program. developer tools pages. 40. 30. Registered advisers who currently advise solely RBICs may rely on the RBIC adviser exemption to withdraw from registration with the Commission. 80b-3(b)(8)) (other than an entity that has elected to be regulated or is regulated as a business development company pursuant to section 54 of the Investment Company Act of 1940 (15 U.S.C. Because advisers are not required to rely on either of the exemptions in Advisers Act rule 203(l) or 203(m) even though they may qualify for them, we expect only those registered investment advisers would experience a net benefit by relying on these exemptions to withdraw from registration. Furthermore, an adviser to RBICs who relies on the venture capital fund adviser exemption will be required to report on Form ADV certain information about the private funds it advises, consistent with the current requirements for exempt reporting advisers.[16]. and services, go to 2009cc-3(b). An adviser could qualify for the private fund adviser exemption if it advised solely private funds and had assets under management in the United States, including assets of the private funds that were RBICs, of less than $150 million. A qualified purchaser is generally defined under the 1940 Act as a sophisticated investor that has a minimum amount of investable assets. See also, Advisers Act section 208(d), which prohibits a person from doing indirectly, or through or by another person, any act or thing which it would be unlawful for such person to do directly. The APA generally requires publication of a rule at least 30 days before its effective date. It is not an official legal edition of the Federal If you are using public inspection listings for legal research, you 80b-3(l)(1) and supra footnote 8. We believe, therefore, that it is likely that such advisers have already exercised these options. 80b-4(a), 15 U.S.C. Form ADV, Part 1A, Item 2.A, Item 5.F.(2)(c). Because we believe that it is likely that advisers have already exercised any exemption options provided to them by the RBIC Advisers Relief Act's amendments to the Advisers Act under the baseline if doing so was in their interest, we do not expect the magnitude of the effects associated directly with the amendments to be significant. They will become effective upon publication in the Federal Register. the Federal Register. ii Relief under the Foreign Private Adviser Exemption is only granted if the foreign private adviser can demonstrate that See id. ), available at https://www.sec.gov/about/forms/formadv-instructions.pdf. 28. We are unable to estimate how many advisers solely to RBICs would choose to take on non-RBIC private funds or non-RBIC venture capital funds as a result of the amendments because we do not have information on the demand for their advisory services from non-RBIC private funds or non-RBIC venture capital funds, or whether any additional business generated would offset these reporting costs. Initial Registration and Annual Renewal Fee - $400. The OFR/GPO partnership is committed to presenting accurate and reliable As of August 2019, there were 5 RBICs who were licensed by the USDA managing approximately $352 million in assets. The RBIC Advisers Relief Act amended Advisers Act section 203(m) by excluding RBIC assets from counting towards the $150 million threshold. The fund invests at least 80% of its assets in qualifying investments, which generally are equity securities of privately held companies (other than private funds) that are issued directly to the fund. 21. Exemption from registration therefore does not mean exemption from regulation. 2. 15 U.S.C. As discussed in Section IV, only approximately 5 advisers would be affected by the amendments. [4] The Venture Capital Fund Adviser Exemption and Amendments to Advisers Act Rule 203(l)-1, B. 3-21499 . to the courts under 44 U.S.C. The United States Department of Agriculture (USDA) licenses RBICs to promote economic development and the creation of wealth and job opportunities in rural areas and among individuals living in those communities.[29]. For an adviser to rely on the private fund adviser exemption, any RBIC that it advises must be a private fund and, therefore, must be disclosed on Form ADV. An adviser may not advise venture capital funds with more than $150 million in assets under management in reliance on the venture capital fund adviser exemption and also advise other types of private funds with less than $150 million in assets under management in reliance on the private fund adviser exemption. Amend 275.203(l)-1 by revising the introductory text to paragraph (a) to read as follows: (a) Venture capital fund defined. Form ADV, Schedule D, Section 7.B.(1). 8. 808(2), allowing the rule amendments to become effective notwithstanding the requirement of 5 U.S.C. These amendments implement congressionally-mandated exemptions to the Advisers Act that are intended to reduce regulatory burdens for advisers to RBICs, said SEC Chairman Jay Clayton. A private funds regulatory assets are calculated as the sum of (a) the current market value of the funds assets (or fair value of those assets where market value is unavailable) and (b) the additional amounts that its investors are contractually obligated to contribute to the fund. The fund that satisfies the requirements of either Section 3(c)(1) or Section 3(c)(7) of the 1940 Act (see above). Each document posted on the site includes a link to the First, to the extent that non-RBIC private fund or non-RBIC venture capital fund advisers find it profitable to enter the market for RBICs under the amendments and the RBIC Advisers Relief Act's amendments to the Advisers Act, competition may increase in that market, resulting in reduced profits for RBIC advisers and lower advisory fees for RBICs and their investors. 80b-3(b)(7)) (other than an entity that has elected to be regulated or is regulated as a business development company pursuant to section 54 of the Investment Company Act of 1940 (15 U.S.C. State Exemptions from Investment Adviser Registration Posted on March 12, 2021 For an investment adviser to qualify for an exemption from state registration, they have to either meet an exemption under the Investment Act of 1940, be a federal covered adviser, or be registered with the SEC. Document Drafting Handbook daily Federal Register on FederalRegister.gov will remain an unofficial More information and documentation can be found in our (the venture capital fund adviser exemption), and (2) the exemption for any adviser who solely advises private funds and has assets under management in the United States of less than $150 million in Advisers Act section 203(m)[7] An investment adviser who relies on the RBIC adviser exemption is not subject to reporting or recordkeeping provisions under the Advisers Act and is not subject to examination by our staff. 80b of the United States Code [15 U.S.C. Finally, advisers that qualified for the private fund adviser exemptions before the RBIC Advisers Relief Act amended the Advisers Act may have begun advising RBICs without changing their registration status independent of the amount of assets attributable to RBICs. Depending on the facts and circumstances, we may view two or more separately formed advisory entities, each of which purports to rely on a separate exemption from registration, as a single adviser for purposes of assessing the availability of exemptions from registration. As discussed above, the RBIC Advisers Relief Act changed registration and reporting requirements for advisers solely to RBICs and for advisers to non-RBIC private funds or non-RBIC venture Start Printed Page 13740capital funds, and may have resulted in an increased number of advisers in those markets. To satisfy the requirements of Section 3(c)(1), a private fund must have fewer than 100 beneficial owners (all of whom must be an accredited investor under the Securities Act of 1933)1 and must not make a public offering of its securities. See Form ADV, General Instruction 3 (How is Form ADV organized? publication in the future. The Investment Advisors Act of 1940 makes it unlawful for a nonregistered investment advisor to use the mail or any instrumentality of interstate commerce in connection with their business unless they fall under one of the exemptive classes of investment advisors. Register documents. Anyone executing a Form ADV or an amendment to Form ADV must use his full name unless the individual legally only has an initial. This prototype edition of the [FR Doc. Investment Adviser Representatives. 31. Such advisers would incur the one-time cost of filing a Form ADV-W withdrawal, which we estimate to be approximately $117 per full withdrawal and $15 per partial withdrawal. This website will also search FINRA's BrokerCheck system and indicate whether an entity is . Document page views are updated periodically throughout the day and are cumulative counts for this document. As noted above, the venture capital fund adviser exemption in Advisers Act section 203(l) provides an exemption from registration under the Advisers Act for investment advisers who solely advise venture capital funds. For the reasons set forth in the preamble, the Commission is amending title 17, chapter II of the Code of Federal Regulations as follows: 1. legal research should verify their results against an official edition of [8] SUMMARY: We are amending the definition of the term "venture capital fund" and the private fund adviser exemption under the Investment Advisers Act of 1940 (the "Advisers Act") to reflect in our rules exemptions from registration for investment advisers who advise rural business investment companies . We are merely amending our rules to reflect the RBIC Advisers Relief Act amendments to the Advisers Act. [41] 38. For a complete compilation of Investment Adviser Firms currently registered with the SEC and states securities regulators, download the Investment Adviser Data.. You can search for an Investment Adviser firm on this website and view the registration or reporting form ("Form ADV") that the adviser filed. . 20. 80b-11(a) and 80b-3(m), respectively). Investment Adviser Guide. Exempt reporting advisers are required to file with the Commission certain information required by Form ADV but are not subject to many of the other substantive requirements to which registered investment advisers are subject. Advisers to RBICs may also advise funds that are not RBICs. In order for a candidate to pass the Series 66 exam, he/she must correctly answer . Registered investment advisers to venture capital funds, including RBICs, may have withdrawn from registration and begun reporting to the Commission as exempt reporting advisers. Investment Adviserand Investment Adviser Representative Exemptions A.R.S. If the registration application is filed by a sole proprietor, it should be signed by the proprietor; if filed by a partnership, it should be signed in the name of the partnership by a general partner; if filed by a corporation, it should be signed in the corporation's name by an authorized principal officer. Advisers to RBICs, which are licensed by the U.S. Department of Agriculture, use the equity raised in capitalizing their funds to make venture capital investments mostly in smaller enterprises located primarily in rural areas. Advisers that did not advise RBICs and qualified for the private fund adviser exemption may begin advising RBICs without changing their registration status regardless of the amount of assets attributable to RBICs. Renew Your ABA Membership Amend 275.203(m)-1 by revising paragraph (d)(1) to read as follows: (1) Assets under management means the regulatory assets under management as determined under Item 5.F of Form ADV (279.1 of this chapter), except the following shall be excluded from the definition of assets under management for purposes of this section: (i) The regulatory assets under management attributable to a private fund that is an entity described in subparagraph (A), (B), or (C) of section 203(b)(7) of the Act (15 U.S.C. 15 U.S.C. Finally, if these changes increase the supply of investment advisers to RBICs, non-RBIC private funds and non-RBIC venture capital funds, and these advisers attract assets that were not already invested in other markets, they may increase the aggregate amount of capital investment. 41. Alexis Palascak, Senior Counsel, or Jennifer Songer, Branch Chief, Investment Adviser Regulation Office at (202) 551-6787 or IArules@sec.gov; Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. 3235-0049), Supporting Statement at footnote 43 and accompanying text (conclusion date of October 4, 2019). Investors in private funds, venture capital funds, or RBICs may experience costs and benefits as a result of the amendments and the RBIC Advisers Relief Act. It is my hope that the reduction in regulatory burdens will encourage capital formation in rural areas where capital to form and grow a business all too often is more scarce than it should be.. These markup elements allow the user to see how the document follows the What is Form ADV Part 2A, and can it be filed electronically? Before the RBIC Advisers Relief Act amended the Advisers Act, RBICs were not included in the definition of the term venture capital fund; therefore, for an adviser to qualify for the venture capital fund adviser exemption, any RBICs that it advised would have had to meet the current definition of the term venture capital fund.[30] 80b], at which the Advisers Act is codified, and when we refer to Advisers Act rules, or any paragraph of these rules, we are referring to title 17, part 275 of the Code of Federal Regulations [17 CFR part 275], in which these rules are published. See infra footnote 11. the material on FederalRegister.gov is accurately displayed, consistent with In addition, there were 4,166 exempt reporting advisers,[37] Such Exempt Reporting Advisers are investment advisers that are exempt from SEC registration under either (i) the private fund adviser exemption [Section 203(m) of the Advisers Act]; or (ii) the . 80a-53)) or any entity described in subparagraph (A) or (B) of section 203(b)(8) of the Act (15 U.S.C. [17] 80b-3a(b)(1), 15 U.S.C. The signature to Form ADV must be notarized, or may be signed without notarization under penalty of perjury. The Commission is amending rule 203(l)-1 under the authority set forth in sections 211(a) and 203(l) of the Advisers Act, (15 U.S.C. To qualify for the expanded definition, the IA must treat the issuer as a private fund under the ICA and applicable rules. The amendments and the RBIC Advisers Relief Act could also impose costs on investors if any reduction in transparency or the other substantive requirements associated with registration reduce the ability of the Commission to protect investors from potentially fraudulent investment advisory schemes.[49]. The subparts of Form ADV Item 2.B are not mutually exclusive to each other; therefore, adding up the responses to the subparts of Form ADV Item 2.B would not reliably result in the total number of exempt reporting advisers. Effective September 1, 2016. Specifically, we are amending Advisers Act rule 203(l)-1 to provide that the term venture capital fund includes RBICs. For example, a non-exempt adviser with $25 to $100 million of regulatory assets under management and a principal office in either New York or Wyoming is not subject to examination and therefore must register with the SEC. See Exemptions for Advisers to Venture Capital Funds, Private Fund Advisers with Less Than $150 Million in Assets Under Management, and Foreign Private Advisers, Investment Advisers Act Release No. These tools are designed to help you understand the official document 80b]. amended the Investment Advisers Act of 1940 (the Advisers Act) to provide one new and two expanded exemptions from registration for investment advisers who advise rural business investment, companies (RBICs). Form ADV, Part 1A, Item 2.B.(1). Approximately 17,500 investment advisers are so registered. [33] In addition, before the RBIC Advisers Relief Act amended the Advisers Act, advisers relying on the private fund adviser exemption were required to register with the Commission if they added RBIC clients that caused their total assets under management in the United States to equal or exceed $150 million. 2023 Morse, Barnes-Brown & Pendleton, PC All Rights Reserved, CityPoint, 480 Totten Pond Road, 4th Floor, Waltham, MA 02451, 50 Milk Street, 18th Floor, Boston, MA 02109, Private Investment Funds and Advisers Practice. Any reduction in transparency could also reduce the aggregate amount of capital managed by investment advisers if investors cannot find suitable registered investment advisers as replacements and these investors value transparency more than any benefits, such as potentially lower advisory fees, of the amendments and the RBIC Advisers Relief Act's amendments to the Advisers Act. 17 CFR 275.203(m)-1(d)(1), Form ADV, Part 1A, Item 5.F (Regulatory Assets Under Management), available at https://www.sec.gov/about/forms/formadv-part1a.pdf. All of the forms, including Forms ADV and ADV-W, contain detailed instructions. The Commission is adding subordinate paragraphs to Advisers Act rule 203(m)-1(d)(1) so that Advisers Act rule 203(m)-1(d)(1)(i) will concern the exclusion of regulatory assets under management attributable to a private fund that is an SBIC and Advisers Act rule 203(m)-1(d)(1)(ii) will concern the exclusion of regulatory assets under management attributable to a private fund that is an RBIC. Where can I get help completing the various registration forms? The RBIC Advisers Relief Act also amended Advisers Act section 203(m), which exempts from investment adviser registration any adviser who solely advises private funds and has assets under management in the United States of less than $150 million, by excluding RBIC assets from counting towards the $150 million threshold. As of August 2019, after the enactment of the RBIC Advisers Relief Act, there were approximately 13,428 registered investment advisers reporting a total of approximately $84 trillion in regulatory assets under management. Advisers that did not advise RBICs and qualified for the venture capital fund adviser exemption may begin advising RBICs without changing their registration status. 80b-3(l)), a venture capital fund is any entity described in subparagraph (A), (B), or (C) of section 203(b)(7) of the Act (15 U.S.C. Symbols: < less than; > greater than; greater than or equal to. Form ADV, General Instruction 14 provides instructions for exempt reporting advisers who may be required to register with or submit reports to state securities authorities. The RBIC adviser exemption exempts from registration any investment adviser who solely advises RBICs. Investment Adviser Representative Registration and Renewal Fee - $150. For example, an individual that has more than $5 million of investments is a qualified purchaser, as is a company or other entity that has more than $25 million of investments. An investment adviser is generally defined under the Investment Advisers Act of 1940 (the Advisers Act) as any person or firm who, for compensation, engages in the business of advising others as to the value of securities, or as to the advisability of investing in, purchasing, or selling securities.

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