July 24, 2004
I am commenting as to the extraterrotrial impact of Proposed Rule 203b3-2 under the Investment Advisers Act of 1940. While the proposed rule would contain special provisions for advisers located outside the United States designed to limit the extraterritorial application of the Advisers Act to offshore advisers to offshore funds that have U.S. investors, it would seem that an adviser to an offshore fund whose offices are in the U.S. and whose shareholders are all non-U.S. persons would be required to register. The proposed new rule would require advisers to private funds to register with the Commission by requiring the advisers to look through the funds and to count the number of investors rather than the fund when determining whether the advisers are eligible for the Adviser Acts exemption for advisers with 14 or fewer clients. This counting rule is accentuated by Rule 203b3-1b5 which states that: an investment adviser that has its principal office and place of business outside of the United States must count only clients that are United States residents an investment adviser that has its principal office and place of business in the United States must count all clients.
I would ask the Commission to consider further limiting the proposed rule so that an adviser to an offshore fund whose clients are all outside of the U.S. would not be required to count those clients in determining whether registration would otherwise be required. In this situation, there are no U.S. investors that would require the Commissions protection. In the alternative, it would appear that the only fact favoring registration is the presence of employees of the adviser in the U.S., since the adviser would not be holding itself out to the public as providng investment services as the fund has no U.S. investors.