On January 18, 2012, the SEC issued a No-Action letter to the American Bar Association, Business Law Section (the “ABA Letter”) that, among other things, provided guidance on the investment adviser registration requirements applicable to commonly-used entities that are closely related affiliates of investment advisers. These entities include (1) general partners of private funds that are advised by a separate registered adviser (“Fund GPs”), and (2) entities that are controlled by, or under common control with, a registered adviser but operate as separate businesses (e.g., a wholly-owned subsidiary of a registered adviser that provides a particular type of investment advice separate from the parent adviser) (“Relying Advisers”).
In the ABA Letter, the SEC confirmed its previous guidance that Fund GPs established by a registered adviser are not required to separately register if they satisfy certain requirements. These requirements are generally designed to ensure that any investment advice given by the Fund GP is subject to the Advisers Act and supervised by the registered adviser. In this regard, many registered investment advisers structure their private funds using an advisory agreement between the Fund GP, the fund and the registered adviser that designates the adviser to manage the private fund’s assets, and monitor and keep books and records regarding any investment advice given by the Fund GP as if it is given through the registered adviser and subject to the Advisers Act.
Similarly, the ABA Letter provides relief to Relying Advisers controlled by or under common control of a registered adviser that provide investment advice subject to the registered adviser’s oversight, monitoring and maintaining books and records as if the investment advice was provided by the registered adviser.
The ABA Letter is available here.