On March 18, 2011, the Securities and Exchange Commission released new guidance regarding Form ADV. The SEC’s Q&As can be found here. The most significant development pertains to a registered adviser’s obligation to deliver Part 2. Specifically, Question III.2 reads as follows:
Q: Rule 204-3 requires an adviser to deliver a brochure and one or more brochure supplements to each client or prospective client. Does rule 204-3 require an adviser to a hedge or other private fund to deliver a brochure and supplement(s) to investors in the private fund?
A: Rule 204-3 requires only that brochures be delivered to “clients.” A federal court has stated that a “client” of an investment adviser managing a hedge fund is the hedge fund itself, not an investor in the hedge fund. (Goldstein v. Securities and Exchange Commission, 451 F.3d 873 (D.C. Cir. 2006)). An adviser could meet its delivery obligation to a hedge fund client by delivering its brochure to a legal representative of the fund, such as the fund’s general partner, manager or person serving in a similar capacity. (Posted March 18, 2011)
Although the SEC’s response focuses on “hedge funds,” because the term “client” is defined the same way for all “private funds,” we can reasonably conclude that advisers to private equity funds and other private funds can satisfy the delivery obligations by delivering the new Part 2 to the general partners of the private equity funds or private funds that they manage – as opposed to the investors in such funds. This is a significant change because previously most registered advisers provided Part 2 to all of the investors in the funds that they managed.
Please note that registered advisers are still required to file Part 2 of Form ADV with the SEC.