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U.S. Securities and Exchange Commission

Advisers to Hedge Funds and Other Private Funds

Background: Title IV of the Dodd-Frank Wall Street Reform and Consumer Protection Act makes numerous changes to the registration and reporting and recordkeeping requirements of the Investment Advisers Act of 1940. Among these is the requirement that advisers to most private funds (hedge funds and private equity funds) register with the Commission. Historically, many of these advisers had been exempt from registration under the so-called “private adviser” exemption. The Dodd-Frank Act replaces this exemption with several narrower exemptions for advisers that advise exclusively venture capital funds and advisers solely to private fund with less than $150 million in assets under management in the United States. Foreign private advisers and advisers to licensed small business investment companies also are exempted.

The Dodd-Frank Act provides the Commission with the authority to collect data from registered investment advisers about their private funds for the purposes of the assessment of systemic risk by the Financial Stability Oversight Council. In addition, the Dodd-Frank Act modifies the allocation of responsibility for mid-sized advisers between state regulators and the Commission.

Implementation: These amendments under the Dodd-Frank Act took effect on July 21, 2011 (one year from the date of enactment of the Dodd-Frank Act). On June 22, 2011, the Commission adopted definitional rules and implementing rules, including transitional rules, to implement the Dodd-Frank Act amendments. The definitional and transitional rules became effective on July 21, 2011. The implementing rules generally become effective on September 19, 2011.

On October 31, 2011, the SEC adopted rules (jointly with the CFTC for dually-registered advisers) requiring advisers to hedge funds and other private funds to report information for use in monitoring systemic financial risk.

Modified: 12/30/2011