Investment Advisers Modernization Act of 2016 2016-09-09 Passed House amended Investment Advisers Modernization Act of 2016

This bill directs the Securities and Exchange Commission (SEC) to amend specified regulations for investment advisers as they apply to private equity firms and private investment funds.

(Sec. 2) The bill revises the disclaimer that, in the case of an investment adviser that is a partnership, an assignment shall not be deemed to result from the death, withdrawal, sale or transfer of minority interests to apply the disclaimer also to minority members, shareholders, for other equity owners of the investment adviser. Qualified clients of an investment adviser may consent to an assignment of the investment adviser contract at the time they enter into an advisory contract.

The Investment Advisers Act of 1940 is amended to repeal the requirement that advisers organized as partnerships notify the other party to an investment adviser contract every time there is a change in the composition of the partnership.

The SEC shall waive the application of specified antifraud prohibitions to advisers who advertise exclusively to:

  • qualified clients, determined as of the time of the publication, circulation, or distribution of the advertisement rather than immediately before or after entering into the investment advisory contract;
  • knowledgeable employees of any private fund to which the investment adviser acts as an investment adviser;
  • qualified purchasers; or
  • accredited investors (determined as if the investment adviser were the securities issuer and the time of the publication, circulation, or distribution of the advertisement were the sale of such securities).

(Sec. 3) The SEC must amend a certain regulation regarding Form PF which registered investment advisers with at least $150 million in private funds assets under management must file with the SEC to report information about the private funds that they manage. This amendment shall state that an investment adviser to a private fund is not required to report any information beyond that which is required by sections 1a and 1b of Form PF unless it is a large hedge fund adviser or a large liquidity fund adviser.

The SEC shall also amend the regulation requiring that client funds and securities of which an investment adviser has custody are verified by actual examination periodically by an independent public accountant.

The SEC shall amend the proxy voting regulation to waive its application to any voting authority exercised by an investment adviser regarding client securities that are not public securities.

(Sec. 4) On the other hand, the SEC may not:

  • amend a specified regulation to extend its requirements and prohibitions concerning investment company sales literature to offerings of securities issued by private funds, or
  • adopt substantially similar rules applicable to such offerings.

(Sec. 5) This bill shall not apply to advisory services supplied to an investment company registered under the Investment Company Act of 1940.

(Sec. 6) Any regulation referred to in this bill includes any successor regulation.

]]> 2016-07-21 Reported to House amended Investment Advisers Modernization Act of 2016

This bill directs the Securities and Exchange Commission (SEC) to amend specified regulations for investment advisers as they apply to private equity firms and private investment funds.

(Sec. 2) The bill revises the disclaimer that, in the case of an investment adviser that is a partnership, an assignment shall not be deemed to result from the death, withdrawal, sale or transfer of minority interests to apply the disclaimer also to minority members, shareholders, for other equity owners of the investment adviser. Qualified clients of an investment adviser may consent to an assignment of the investment adviser contract at the time they enter into an advisory contract.

The Investment Advisers Act of 1940 is amended to repeal the requirement that advisers organized as partnerships notify the other party to an investment adviser contract every time there is a change in the composition of the partnership.

The SEC shall waive the application of specified antifraud prohibitions to advisers who advertise exclusively to:

  • qualified clients, determined as of the time of the publication, circulation, or distribution of the advertisement rather than immediately before or after entering into the investment advisory contract;
  • knowledgeable employees of any private fund to which the investment adviser acts as an investment adviser;
  • qualified purchasers; or
  • accredited investors (determined as if the investment adviser were the securities issuer and the time of the publication, circulation, or distribution of the advertisement were the sale of such securities).

(Sec. 3) Another regulation shall declare that an investment adviser is not required to deliver a brochure or brochure supplement to a client that is a limited partnership, limited liability company, or other pooled investment vehicle for which each limited partner, member, or other equity owner has received, before purchasing a security issued by the pooled investment vehicle, a prospectus, private placement memorandum, or other offering document containing (to the extent material to the private fund offering) substantially the same information as would be required by Part 2A or 2B of Form ADV.

The SEC must amend a certain regulation regarding Form PF which registered investment advisers with at least $150 million in private funds assets under management must file with the SEC to report information about the private funds that they manage. This amendment shall state that an investment adviser to a private fund is not required to report any information beyond that which is required by sections 1a and 1b of Form PF unless it is a large hedge fund adviser or a large liquidity fund adviser.

The SEC shall also amend the regulation requiring that client funds and securities of which an investment adviser has custody are verified by actual examination periodically by an independent public accountant. The current "privately offered securities" exemptions from this custody rule must apply to the outstanding securities (except short-term paper) of the pooled investment vehicle beneficially owned exclusively by:

  • the investment adviser;
  • affiliated or supervised persons;
  • officers, directors, and employees of affiliated persons;
  • family members (or former family members) of such persons; or
  • officers, directors, and employees or affiliated persons of, or persons who provide, have provided, or who have entered a contract to provide services to the investment adviser of the pooled investment vehicle, one or more of the adviser's clients, or to issuers from which the pooled investment vehicle or any other client of the vehicle's investment adviser has acquired securities, such as the portfolio company of a private fund.

The SEC must also make an exception that applies if the pooled investment vehicle has been established to hold only the securities of a single issuer in which one or more pooled investment vehicles managed by the investment adviser have acquired a controlling interest.

The SEC shall amend the proxy voting regulation to waive its application to any voting authority exercised by an investment adviser regarding client securities that are not public securities.

(Sec. 4) On the other hand, the SEC may not:

  • amend a specified regulation to extend its requirements and prohibitions concerning investment company sales literature to offerings of securities issued by private funds, or
  • adopt substantially similar rules applicable to such offerings.

(Sec. 5) This bill shall not apply to advisory services supplied to an investment company registered under the Investment Company Act of 1940.

(Sec. 6) Any regulation referred to in this bill includes any successor regulation.

]]> 2016-06-09 Introduced in House Investment Advisers Modernization Act of 2016

This bill directs the Securities and Exchange Commission (SEC) to amend specified regulations for investment advisers as they apply to private equity firms and private investment funds.

A specified regulation regarding books and records that investment advisers must maintain shall be amended to declare that an investment adviser is not required to maintain:

  • any communications or materials (including any made available in a secure electronic or physical data room) used in connection with due diligence for a prospective investment, if the communications or materials are subject to a confidentiality agreement; or
  • any written communications regarding recommendations, advise, purchase or sell orders, or the receipt, disbursement or delivery of funds or securities if they are sent and received only by supervised persons of the investment adviser.

The bill revises the disclaimer that, in the case of an investment adviser that is a partnership, an assignment shall not be deemed to result from the death, withdrawal, sale or transfer of minority interests to apply the disclaimer also to minority members, shareholders, for other equity owners of the investment adviser.

The Investment Advisers Act of 1940 is amended to repeal the requirement that advisers organized as partnerships notify the other party to an investment adviser contract every time there is a change in the composition of the partnership.

The SEC shall waive the application of specified antifraud prohibitions to advisers who advertise exclusively to accredited investors, qualified clients, qualified purchasers, or knowledgeable employees.

Another regulation shall declare that an investment adviser is not required to deliver a brochure or brochure supplement to a client that is a limited partnership, limited liability company, or other pooled investment vehicle for which each limited partner, member, or other equity owner has received, before purchasing a security issued by the pooled investment vehicle, a prospectus, private placement memorandum, or other offering document containing (to the extent material to the private fund offering) substantially the same information as would be required by Part 2A or 2B of Form ADV.

The SEC must amend a certain regulation regarding Form PF which registered investment advisers with at least $150 million in private funds assets under management must file with the SEC to report information about the private funds that they manage. This amendment shall state that an investment adviser to a private fund is not required to report any information beyond that which is required by sections 1a and 1b of Form PF unless it is a large hedge fund adviser or a large liquidity fund adviser.

The SEC shall also amend the regulation requiring that client funds and securities of which an investment adviser has custody are verified by actual examination periodically by an independent public accountant. The current "privately offered securities" exemptions from this custody rule must apply to both certificated and uncertificated securities and exempt special purpose vehicles managed by private fund sponsors and co-investment funds that hold only one investment.

The SEC shall amend the proxy voting regulation to waive its application to any voting authority exercised by an investment adviser regarding client securities that are not public securities.

On the other hand, the SEC may not:

  • amend a specified regulation to extend its requirements and prohibitions concerning investment company sales literature to offerings of securities issued by private funds, or
  • adopt substantially similar rules applicable to such offerings.

This bill shall not apply to advisory services supplied to an investment company registered under the Investment Company Act of 1940.

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