Written by Jay Gould and Peter Chess

On January 18, 2012, the Office of Investment Adviser Regulation, part of the Division of Investment Management, issued a no-action letter (the “2012 Letter”) in response to a request for guidance from the American Bar Association’s Subcommittee on Hedge Funds on issues regarding the registration of certain investment advisers that are related to investment advisers registered with the Securities and Exchange Commission (the “SEC”).  The 2012 Letter both reaffirms previous positions of the SEC and provides additional guidance, as discussed below.

Special Purpose Vehicles (“SPVs”).  In a December 8, 2005 letter, the SEC stated that it would not recommend enforcement action against a registered adviser and an SPV if the SPV did not separately register as an investment adviser, subject to conditions.  The 2012 Letter reaffirms this position.  The conditions in such a situation require that:

  • the investment adviser to a private fund establishes the SPV to act as the private fund’s general partner or managing member;
  • the SPV’s formation documents designate the investment adviser to manage the private fund’s assets;
  • all of the investment advisory activities of the SPV are subject to the U.S. Investment Advisers Act of 1940, as amended (the “Advisers Act”); and
  • the registered adviser subjects the SPV, its employees and persons acting on its behalf to the registered adviser’s supervision and control and, therefore, the SPV, all of its employees and the persons acting on its behalf are “persons associated with” the registered adviser.

SPVs with Independent Directors.  The 2012 Letter states that an SPV that relies on the above conditions may also have “independent directors” and therefore would not be required to meet the uniformity of personnel requirement.

Groups of Related Advisers.  The 2012 Letter notes that for a variety of reasons, advisers to private funds may be part of a group of related advisers.  In some situations these advisers, although organized as separate legal entities, conduct a single advisory business because they, among other things, are subject to a unified compliance program and use the same or similar names.  The 2012 Letter states that a filing adviser and one or more relying advisers would be conducting a single advisory business and thus a single registration would be appropriate under the following circumstances:

  • The filing adviser and each relying adviser advise only private funds and separate account clients that are qualified clients 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. 
  • Each relying adviser, its employees and the persons acting on its behalf are subject to the filing adviser’s supervision and control and, therefore, each relying adviser, its employees and the persons acting on its behalf are “persons associated with” the filing adviser. 
  • The filing adviser has its principal office and place of business in the United States and, therefore, all of the substantive provisions of the Advisers Act and the 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. 
  • 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.
  • The filing adviser and each relying adviser operate under a single code of ethics and a single set of written policies and procedures, administered by a single chief compliance officer.
  • The filing adviser discloses in its Form ADV (Miscellaneous Section of Schedule D) that it and its relying advisers are together filing a single Form ADV in reliance on the 2012 Letter and identifies each relying adviser by completing a separate Section 1.B., Schedule D, of Form ADV for each relying adviser and identifying it as such by including the notation “(relying adviser).”