How to get an IA application approved quickly
Occasionally we find the opportunity to comment on other blog posts from other legal professions within and outside of the investment management industry. A legal blogger who I regularly follow is David Feldman from the Reverse Mergers & SPAC Blog. David is the expert in the reverse mergers field and has authored the authoritative text Reverse Mergers: Taking a Company Public Without an IPO (Bloomberg Press). In his post yesterday, Speeding a Self-Filing, he discusses some tips that are designed to help self-filers get through the registration process as quickly as possible. The points are well-received and I would like to take the opportunity to discuss a couple of the points as they relate to the investment adviser registration process with the various state securities commissions. [Note: unlike other types of regulatory filings with the SEC, a SEC investment advisor registration is fairly quick and relatively straightforward. Managers should be aware, however, that the SEC is likely to do a quick examination within the first couple of months after a hedge fund manager registers with the SEC. Usually this is to make sure the advisor is broadly aware of the compliance issues involved with being registered with the SEC.]
Respond quickly to comments: Management is busy, so are the lawyers and accountants. Nevertheless, one part of the process in your control is how fast you get back to the SEC when they have comments. If you care about getting the self-filing done quickly, drop everything and get the response done as soon as possible.
HFLB thoughts: it is the rare case when a state investment advisor registration gets approved without some sort of comment or inquiry from the securities commission. Depending on the state, the inquiry can be more or less detailed and probing. In most cases, however, once an inquiry is provided to the applicant, registration is likely to be right around the corner. Accordingly, once an inquiry is provided to the manager, the manager and the lawyer should work to get a response drafted immediately.
Don’t argue on comments you will probably give in on later: Often a company or accountant will say, well, we think they will very likely not give us any room on our response, but let’s try and see what happens. If you care about the speed of the process, it is usually not worth challenging comments if your advisers believe there is virtually no chance of success.
HFLB thoughts: we would also like to add that if the regulators are asking for something that does not materially affect the investment program or the manner in which the management company will operate, the manager might be better off acquiescing instead of fighting. I have had groups fight with regulators on principles only to later abandon the fight for practicality. There is definitely an element of picking your battles wisely.
Always be respectful: The SEC is an important and powerful government agency. Almost everyone I have worked with there are highly intelligent and well-meaning folks. But their focus sometimes jibes with that of companies they are seeking to regulate for the protection of investors. Make sure you are always respectful and responsive to the SEC. Not only do they deserve it, but belligerence is just as likely to lead to more ire from them than positive results.
HFLB thoughts: this is an extremely important point. Regulators are charged with a tough and important job and it does not help anyone to be anything less than absolutely respectful.
Many of the above comments apply equally as well for those groups who are registering with other regulatory bodies such as the CFTC (as a CPO or a CTA) and who need to go through the NFA disclosure document review process.
- Investment Advisor Books and Records Requirement
- How to Register as an Investment Advisor
- Net Capital Requirement for State Registered IA Firms
- Withdrawing from IA Registration
- Hedge Fund Best Practices
Bart Mallon, Esq. runs hedge fund law blog and has written most all of the articles which appear on this website. Mr. Mallon’s legal practice, Cole-Frieman & Mallon LLP, is devoted to helping emerging and start up hedge fund managers successfully launch a hedge fund. If you are a hedge fund manager who is looking to start a hedge fund, or if you have questions about investment adviser registration with the SEC or state securities commission, please call Mr. Mallon directly at 415-296-8510.