SEC Releases Information on Mid-Sized Advisers – New York Managers may be Required to Register with SEC
Currently managers with a place of business in New York are not required to register as investment advisers at the state level with the New York Department of State. Until the Dodd-Frank Act was passed last year, these managers also were exempt from registration with the SEC because of the old Section 203(b)(3) exemption. After the Dodd-Frank Act repealed the 203(b)(3) exemption, it was unclear how certain managers (like those managers with a place of business in New York) would be regulated. Recently the SEC passed final hedge fund registration regulations which, among other things, clarifies how certain mid-sized hedge fund managers will be regulated. The SEC also recently released a FAQ on how the mid-sized advisers. The import of the Dodd-Frank Act and the new regulations means that certain New York hedge fund managers will be required to register as investment advisers with the SEC.
Mid-Sized Adviser Overview
A mid-sized adviser is generally an investment adviser with between $25M and $100M of AUM. Mid-sized advisers are not allowed to register with the SEC unless the mid-sized adviser is located in New York state or Wyoming, in which case they will be required to register with the SEC. Those mid-sized advisers who are currently registered with the SEC (under the applicable regulations effective prior to the Dodd-Frank Act) will be required to “switch” to state registration by June 28, 2012. Any mid-sized adviser starting their business after July 21, 2011 will be required to register with the state securities commission or with the SEC if they are in New York or Wyoming. More technical guidance on accomplishing the “switch” from SEC to state registration is expected to be provided by the SEC and various state regulators in the coming months.
Overview of IA Registration Requirement for New York Managers
Based on the new federal regulations, managers with a principal place of business in New York will be subject to registration/exemption as follows:
Manager provides advice to hedge funds only –> has AUM of between $25M and $150M –> no registration with SEC or state (but will be an Exempt Reporting Adviser required to submit a truncated Form ADV by March 30,2012)
Manager provides advice to hedge funds only –> has AUM of over $150M –> registration with SEC required
Manager provides advice to hedge funds and separate accounts –> has AUM of at least $25M –> registration with SEC required
Managers should note that if they are initially commencing operations they will need to follow the new regulations immediately.
Next Steps for New York Managers
New York based managers who fall within the Mid-Sized category and will need to start making preparations with respect to registering as an investment adviser with the SEC. The deadline for registration with the SEC will be March 30, 2012.
The SEC FAQ on Mid-Sized Advisers is reprinted in full below and can be found
Division of Investment Management:
Frequently Asked Questions Regarding Mid-Sized Advisers
What is a “mid-sized adviser”?
A “mid-sized adviser” is an investment adviser that has between $25 million and $100 million of assets under management.
Are mid-sized advisers required to register with the Securities and Exchange Commission?
After July 21, 2011, a mid-sized adviser must register with the Securities and Exchange Commission if it:
i. is not required to be registered as an adviser with the state securities authority in the state where it maintains its principal office and place of business; or
ii. is not subject to examination as an adviser by the state where it maintains its principal office and place of business.
A mid-sized adviser that does not meet either one of these two requirements is prohibited from registering as an adviser with the Commission after July 21, 2011, but will have to register with the state securities authorities. There are a few exceptions to the general prohibition from SEC registration in rule 203A-2, such as for certain multi-state investment advisers and pension consultants. In addition, a mid-sized adviser that is required to register with the SEC, may elect to not register if it can rely on an exemption from registration, such as those for certain advisers to private funds.
In which states would a mid-sized adviser not be “subject to examination” by the state securities authority?
New York or Wyoming.
A mid-sized adviser with its principal office and place of business in either of those states is not “subject to examination” by the state securities authority and would have to register with the SEC. A mid-sized adviser with its principal office and place of business in any other state is “subject to examination.” This information will be updated promptly upon notification by a state securities authority of any change to examination status.
How does a mid-sized adviser determine if it is “required to be registered” in the state where it maintains its principal office and place of business?
A mid-sized adviser should consult the investment adviser laws or the state securities authority for that state to determine if it is required to register as an investment adviser in that state.
When is a mid-sized adviser that is no longer eligible for Commission registration required to switch to state registration?
A mid-sized adviser registered with the Commission as of July 21, 2011 must remain registered with the Commission until January 1, 2012 (unless an exemption from Commission registration is available). Each adviser registered with the Commission on January 1, 2012 must file an amendment to its Form ADV no later than March 30, 2012, which for most advisers will be their annual updating amendment. A mid-sized adviser that is no longer eligible for Commission registration will need to be registered with the state securities authorities by June 28, 2012, and must withdraw its Commission registration by filing Form ADV-W, indicating it is filing a “partial withdrawal,” no later than that date.
The adopting release amending Form ADV, dated June 22, 2011 (the “Adopting Release”) can be found at:http://www.sec.gov/rules/final/2011/ia-3221.pdf .
Amended Form ADV can be found at:http://www.sec.gov/rules/final/2011/ia-3221-appd.pdf .
Amended Form ADV instructions can be found at:http://www.sec.gov/rules/final/2011/ia-3221-appa.pdf andhttp://www.sec.gov/rules/final/2011/ia-3221-appb.pdf .