20 September, 2016
In late August 2016, the SEC adopted amendments to the US Investment Advisers Act and Form ADV to improve the quality of information that is provided to investors and to enhance the SEC’s ability to monitor and regulate the asset management industry.
The amendments to the Advisers Act will require SEC-registered advisers to document and maintain their track record calculations or rates of return that appear in any of their written communications.
The amendments to Form ADV will require SEC-registered advisers with $500 million or more of separately managed account regulatory assets under management to report much more information about their separately managed accounts such as the approximate percentage of separately managed account regulatory assets that are invested in 12 broad asset categories as well as the use of leverage and derivatives in those accounts. The amendments to the form will permit groups of related SEC-registered private fund adviser entities operating a single advisory business to register using a single Form ADV, known as umbrella registration. Umbrella registration will not extend to non-U.S. filing advisers or to exempt reporting advisers.
The conditions for umbrella registration are as follows:
1. The filing adviser and each relying adviser advise only private funds and clients in separately managed accounts that are qualified clients (as defined in SEC rule 205-3 under the Advisers Act) and are otherwise eligible to invest in the private funds advised by the filing adviser or a relying adviser and whose accounts pursue investment objectives and strategies that are substantially similar or otherwise related to those private funds;
2. The filing adviser has its principal office and place of business in the US and, therefore, all of the substantive provisions of the Advisers Act and 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 (this is significant because it effectively eliminates the ability of non-US advisers to use umbrella registration unless the filing adviser has its principal office and place of business in the US and also eliminates “regulation lite” for a non-US relying adviser and will require them to apply all of the Advisers Act and related rules to all of its client, not just to its US clients, if it wants to register with the SEC under a single Form ADV);
3. Each relying adviser, its employees and the persons acting on its behalf are subject to the filing adviser’s supervision and control;
4. 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
5. The filing adviser and each relying adviser operate under a single set of compliance policies and code of ethics adopted in accordance with the Advisers Act and SEC rules and administered by a single chief compliance officer.
The compliance date is 1 October 2017.
By Ethan W. Johnson, Morgan, Lewis & Bockius LLP
For further information, please contact:
Scott Carnachan, Deacons
scott.carnachan@deacons.com.hk
