March 28, 2012
The Commission should make it clear that non-US advisers with no US clients do not need to register with the SEC.
Nearly all the commentators and the official guidance focus on how to apply the three new exemptions, how to count assets, what does in the US mean etc. Very little has been written on the threshold question of "Do I as a non-US adviser need to register at all?"
The Commission should make clear that the exemptions only matter if the adviser is required to register under 203(a) – that is, if the adviser uses US mail or interstate commerce in connection with its investment adviser business. An adviser who must register does so because it advises US clients. An adviser with no US clients would not register if it does not use US instrumentalities in its advisory business.
Another way of saying this is that the "look through" of the Foreign Private Adviser Exemption is only applicable when determining whether the exemption applies. There is no "look through" applied when making the initial 203(a) determination. The Commission should make clear that the adviser has to be captured by 203(a) to even get to the next level of applying the exemptions.
As applied to a complex non-US structure of multiple funds, managing entities, and adviser entities, therefore, only the entities with a direct US nexus are captured by 203(a). The Commission should confirm that the initial step prior to considering exemptions is to determine which entities in such a structure are the advisers to the US investors.
Many non-US advisers (and managers) are rushing into SEC registration (as Exempt Reporting Advisers) because they've looked at the exemptions first and concluded that they fail the Foreign Private Adviser Exemption (because of the look through to fund investors) and that they meet the Private Fund Adviser Exemption, even though they manage no assets in the US. This would be ameliorated if the Commission were to affirm that, under 203(a), the first filter to apply to a complex non-US structure is "Which entities have US investors as clients recieving investment advice?" The Commission should affirm that those are the advisers the SEC wants to know about.