The fund represents to investors and potential investors that it pursues a venture capital strategy. corresponding official PDF file on govinfo.gov. [46] 46. * This fee is paid directly to the Illinois Securities Department. We are amending our rules to reflect the RBIC Advisers Relief Act amendments to the Advisers Act. This option provided by the RBIC Advisers Relief Act is difficult to value, but its value is broadly determined by the cost reductions associated with the change in registration status compared to the explicit and implicit costs of withdrawing from registration. The signature to Form ADV must be notarized, or may be signed without notarization under penalty of perjury. that agencies use to create their documents. A Rule by the Securities and Exchange Commission on 03/10/2020. [10] See 17 CFR 275.203(l)-1 and supra footnote 13. 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. [3] We do not believe that the amendments to reflect changes that the RBIC Advisers Relief Act made to the Advisers Act make any substantive modifications to any existing collection of information requirements or impose any new substantive recordkeeping or information collection requirements within the meaning of the Paperwork Reduction Act of 1995 (PRA). 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. Accordingly, we are not revising any burden and cost estimates in connection with these amendments.[52]. In addition, there were 4,166 exempt reporting advisers,[37] 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. To establish a baseline useful for evaluating the economic effects of the amendments, we briefly describe the nature of RBICs and then define the different classes of advisers that could be affected by the amendments. 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. Form ADV under the Investment Advisers Act of 1940 (OMB No. 15. Licensing Requirements for Investment Advisers and Representatives Registered investment advisers to RBICs and other venture capital funds may withdraw from registration and report to the Commission as exempt reporting advisers because the definition of venture capital fund now includes RBICs. 80b-3 and 80b4. This requirement does not apply, however, if the agency finds good cause for making the rule effective sooner. In addition to the three classes of advisers who advised RBICs as discussed above, two additional classes of advisers that did not advise RBICs are also relevant: (1) Advisers solely to venture capital funds that qualify for the venture capital fund adviser exemption from registration and are considered exempt reporting advisers; and (2) advisers solely to non-RBIC private funds with less than $150 million in assets under management in the United States that qualify for the private fund adviser exemption from registration and are considered exempt reporting advisers. 3235-0049) (conclusion date of October 4, 2019). Series 66 - Uniform Combined State Law Exam | FINRA.org See id. 44. This definition is consistent with the definition of RBIC used in sections 203(l) and 203(m) of the Advisers Act discussed below, and we have used this term for purposes of this release. 604(a) (requiring a final regulatory flexibility analysis only for rules required by the APA or other law to undergo notice and comment). of whom 1,256 relied on the venture capital fund adviser exemption,[38] [51] 49:3-50(b)(9)provides an exemption for sales to no more than ten New Jersey residents in any twelve-month period, provided that the investors purchase for investment, no commission is paid directly or indirectly for soliciting buyers in New Jersey, and the securities are not offered or sold by general solicitation or general advertisement. 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. 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. To make our rules consistent with amended Advisers Act section 203(m), we are amending Advisers Act rule 203(m)-1(d)(1), which defines the term assets under management for purposes of the private fund adviser exemption. 3235-0049), Supporting Statement at footnote 43 and accompanying text (conclusion date of October 4, 2019). See supra footnote 9. 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. publication in the future. For complete information about, and access to, our official publications The Venture Capital Fund Adviser Exemption and Amendments to Advisers Act Rule 203(l)-1, B. Introduction. 801 (if a federal agency finds that notice and public comment are impractical, unnecessary, or contrary to the public interest, a rule shall take effect at such time as the federal agency promulgating the rule determines). See Form ADV-W, Instruction 1. (1), Item 2.B.(2). However, inconsistencies in the definitions of venture capital funds and private fund assets under management that exist between the Advisers Act rules and the Advisers Act as amended by the RBIC Advisers Relief Act may have discouraged some advisers from changing business practices following passage of the RBIC Advisers Relief Act. Each copy of an execution page must contain an original, manual signature. If you are using public inspection listings for legal research, you 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. 80b-11(a) and 80b-3(m), respectively). 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. 3-21499 . Although the RBIC Advisers Relief Act does not expressly require the Commission to amend the Advisers Act rules, the amendments are designed to eliminate any confusion that might otherwise exist if Advisers Act rules 203(l)-1 and 203(m)-1 were not amended. 18. daily Federal Register on FederalRegister.gov will remain an unofficial Attn: Filing Desk. 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. However, we do not have information on the extent to which advisers solely to RBICs have been deterred from exercising their options under the RBIC Advisers Relief Act's amendments to the Advisers Act due to any inconsistencies between the Advisers Act and Commission rules under the baseline and thus we cannot estimate how many additional advisers would exercise these options as a result of the amendments that have not already done so. Because we expect most advisers that would choose to change business practices because of amendments to the Advisers Act pursuant to the RBIC Advisers Relief Act already have done so, we do not expect the magnitude of these effects attributable solely to the amendments to be significant. Form ADV, Part 1A, Item 2.B.(1). Rule 204-1 and the instructions to Form ADV give more complete information on amendments. 17. 38. 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 (RBICs). 80b of the United States Code [15 U.S.C. 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. Investment Adviser Registration Investment advisers may be primarily regulated by the U.S. Securities and Exchange Commission (SEC) or by one or more state securities authorities. for better understanding how a document is structured but Investment Adviser Registration and Exempt Reporting Form - Ohio Filing the form is mandatory. For purposes of section 203(m) of the Act (15 U.S.C. 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. PDF Guide to Investment Adviser Registration - Katten Muchin Rosenman If investors value the transparency provided by complete Form ADV reporting and the safeguards associated with the other substantive requirements of being a registered investment adviser, then the modifications could impose costs on investors if the modifications result in advisers changing their status from registered to exempt reporting. See 17 CFR 275.203(l)-1 and supra footnote 13. 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] and services, go to The amendments provide registered advisers that have not taken advantage of the venture capital fund adviser and private fund adviser exemptions due to inconsistencies between the RBIC Advisers Relief Act's amendments to the Advisers Act and Commission rules with clarification on the option to switch from registered investment adviser to exempt reporting adviser status. [15] Counts are subject to sampling, reprocessing and revision (up or down) throughout the day. Amended Advisers Act rule 203(l)-1(a). 80b-3a(b)(1), 15 U.S.C. 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. 80b-3(b). For more information, please contact a member of our Private Investment Funds and Advisers Practice. 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. An exempt adviser, however, remains subject to a range of other regulations that are intended to protect investors. 80a-8. The Commission adopted amendments to rules 203(l)-1 and 203(m)-1. [26] 80b-11(a) and 80b-3(l), respectively). Where can I get help completing the various registration forms? See infra footnote 11. 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. See 5 U.S.C. SEC Investment Adviser | The Department of Financial Protection and 3235-0049), Supporting Statement at footnote 10 (stating the number of registered investment advisers), footnote 45 (stating the total annual cost of filing Form ADV), footnote 43 (stating the annual filing cost per exempt reporting adviser), and accompanying text (conclusion date of October 4, 2019). developer tools pages. [31] N.J.S.A. While we cannot precisely estimate the relative likelihood of the above competitive effects, the fact that RBIC advisers operate in a market that is an order of magnitude smaller than the market in which non-RBIC private fund and non-RBIC venture capital fund advisers operate suggests that non-RBIC private fund and non-RBIC venture capital fund advisers are more likely to benefit from entry into the RBIC market following the RBIC Advisers Relief Act's enactment, thereby increasing the amount of competition in that market. 2. 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. All other fees are paid through FINRA, the . 20. These exemptions were enacted as part of the RBIC Advisers Relief Act of 2018 (the RBIC Advisers Relief Act), which amended Advisers Act sections 203(l) and 203(m), among other provisions. Any costs incurred before this rulemaking by advisers that already exercised exemption options provided to them by the RBIC Advisers Relief Act's amendments to the Advisers Act are a direct effect of the RBIC Advisers Relief Act; however, we do not have information to estimate the Start Printed Page 13739number of advisers that have already exercised these options. Additional inquiries regarding the mechanics of completing and filing the forms should be directed to: Branch of Registrations and Examinations, SEC Operations Center, Mail Stop A-2, 6432 General Green Way Drive, Alexandria, VA 22312; phone: (202) 942-8980. Prior to enactment of the RBIC Advisers Relief Act, advisers to RBICs belonged to one of three classes, depending on the amount of assets and types of funds they advised: (1) Registered investment advisers solely to RBICs; (2) registered investment advisers to RBICs and non-RBICs; or (3) exempt reporting advisers. Highlights Increasing numbers of small, mid-size and large exempt reporting advisers (ERA) in the investment adviser community have drawn the interest of the U.S. Securities and Exchange Commission's (SEC) Division of Enforcement. These exemptions were enacted as part of the RBIC Advisers Relief Act of 2018, which amended the Investment Advisers Act. Section 203(m) of the Advisers Act requires the SEC to provide an exemption from registration to any investment adviser that acts solely as an adviser to private funds and that has assets under management in the United States of less than $150 million. better and aid in comparing the online edition to the print edition. 2020-04571 Filed 3-9-20; 8:45 am]. Form ADV under the Investment Advisers Act of 1940 (OMB No. [43] State registration or notice filing may e required. Finally, to the extent that advisers benefit from marketing themselves as registered investment advisers to client funds and investors, they will forgo this benefit by withdrawing from registration. In addition, advisers that switch from exempt to exempt reporting status may incur indirect costs if the information they disclose on Form ADV, such as any disciplinary history, reduces investor demand for their advisory services. 12. Under Advisers Act section 204(a), the Commission has the authority to require an investment adviser to maintain records and provide reports, as well as the authority to examine such adviser's records, unless the adviser is specifically exempted from the requirement to register pursuant to Advisers Act section 203(b), which includes Advisers Act section 203(b)(8) (the RBIC adviser exemption). Similarly, to the extent that RBIC advisers find it profitable to enter the non-RBIC private fund or non-RBIC venture capital fund advisory market, competition in those markets may increase, resulting in reduced profits for non-RBIC private fund and non-RBIC venture capital fund advisers and lower advisory fees for non-RBIC private funds and non-RBIC venture capital funds and their investors. 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. No SEC registration required. 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. If investors face fixed costs in transacting with a given adviser, for example in performing any necessary due diligence, they may benefit if the amendments and the RBIC Advisers Relief Act encourage more advisers to advise both RBIC and non-RBIC private funds, allowing investors to consolidate different types of investments with a single adviser. Specifically, the RBIC Advisers Relief Act amended Advisers Act section 203(l), which exempts from investment adviser registration any adviser who solely advises venture capital funds, by stating that RBICs are venture capital funds for purposes of the exemption. We also are amending the definition of the term assets under management in Advisers Act rule 203(m)-1 to exclude RBIC assets from counting towards the $150 million threshold. [40] The economic effects of the amendments are discussed below. 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]. (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. Accordingly, we are amending the definition of the term assets under management in the private fund adviser exemption to exclude the assets of RBICs. Guide to State Investment Adviser Registration for Private Funds Additional Information Sources Regarding SEC-Registered Investment Advisers A non-exempt adviser that has $25 to $100 million of regulatory assets under management must register with the securities regulator of the state in which it has its principal office unless the adviser would not be subject to examination by that states securities regulator (in which case the adviser must register with the SEC).2. To qualify for the expanded definition, the IA must treat the issuer as a private fund under the ICA and applicable rules. Federal Register provide legal notice to the public and judicial notice These markup elements allow the user to see how the document follows the The RBIC Advisers Relief Act amended Advisers Act section 203(m) by excluding RBIC assets from counting towards the $150 million threshold. 9. Investment Adviser: FAQs - NASAA Register (ACFR) issues a regulation granting it official legal status. [18] and 431 qualified for both exemptions. 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]. IAPD provides information on Investment Adviser firms regulated by the SEC and/or state securities regulators . 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. Exempt reporting advisers must complete a subset of items and schedules on Form ADV. This amendment is designed to reflect that an investment adviser who relies on the venture capital fund adviser exemption may advise solely venture capital funds, including RBICs. [12] We discuss the potential economic effects of the amendments and the RBIC Advisers Relief Act, including costs and benefits and impacts on efficiency, competition, and capital formation, on these investment advisers and investors in the next two sections. Exempt Reporting Adviser filing required with SEC over $150m ($25m in NY and WY) Any State: Solely 3(c)(1) or 3(c)(7) funds (e.g. 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. SEC.gov | Information About Registered Investment Advisers and Exempt These tools are designed to help you understand the official document 19. Federal Exemptions from Investment Advisor Registration 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).