1. Current Legal and Regulatory Issues
New Investment Adviser Registration Rules Under the Dodd-Frank Act

2. Overview of Investment Advisers Act Framework
Historically – Investment managers with fewer than 15 funds were exempt from registration under the Advisers Act
Dodd Frank Act (legislation passed following the 2008 financial market turmoil) removed the <15 client exemption
Post Dodd-Frank three regimes of registration
Completely exempt advisers – foreign private adviser
Exempt reporting advisers – advisers to venture capital funds and certain private funds
Registered advisers – all others

3. Exempt Advisers – Foreign Private Adviser
New definition of “foreign private adviser”
Has no place of business in the US
Has in total fewer than 15 clients (funds) and investors (limited partners) in the US in private funds advised by adviser
Has aggregate assets under management attributable to US clients and investors of less than US$25 million.
Does not hold itself out generally to the public in the US as an investment adviser or fund manager
Do not need to register or report
Most managers of international funds will not qualify for this exemption because they raise more than US$25 million from US investors.

4. Private Fund Advisers – Must Report to the SEC
Advise solely private funds that have less than US$150 million in assets under management in the US
Assets under management are valued annually at fair value, and include uncalled capital commitments
A non-US adviser (principal office and place of business outside of the US) need only count private fund assets that it manages at a place of business in the US
A Chinese fund manager with no personnel in the US could take advantage of this exemption
However, may not rely on this exemption if adviser has any US person, other than a private fund, as a client
Exempt from registration but must still report to SEC

5. Venture Capital Fund Advisers – Must Report to the SEC
Advise solely venture capital funds:
Up to 20% of a VC fund’s capital commitments may be in non-qualifying investments other than short-term holdings (i.e. money market investments)
Examples of non-qualifying investments: PIPES, leveraged buyouts, loans, secondary purchases
Qualifying investments must be made in equity securities for operating and business purposes in qualifying portfolio companies (private, operating companies that do not borrow in connection with a financing)
Examples of qualifying investments: convertible notes, preferred stock, warrants, and options issued directly by the company
A VC fund cannot borrow or otherwise incur leverage, other than short term borrowing (15% of fund’s capital commitments and for <120 days)
Cannot offer redemption rights to investors other than exceptional circumstances
Represent to investors they are pursuing a venture capital strategy and must be private 3(c)(1) / 3(c)(7) funds
“Grandfathered” VC funds do not need to comply with these restrictions (formed before December 30, 2010, held themselves out as venture capital funds and held their last closing before July 21, 2011)
Exempt from registration but must still report to the SEC

6. Obligations of registered advisers
Advisers who do not qualify for an exemption must register with the SEC
Obligations of registered advisers
Extensive reporting obligations to the SEC
Extensive compliance and record keeping regime (including appointment of a Chief Compliance Officer, implementation of various policies and 5 year record retention)
Restrictions on advertising and payment for referrals
Custodial and trading practice restrictions
Carry may only be charged to “qualified clients” (at least US$1 million under management with the adviser or a net worth of at least US$2 million)
SEC examinations every three years

7. Other Considerations/Action Items
Registered Advisers: Registration must be declared effective by SEC by March 30, 2012; must file Form ADV 45 days prior for review
Reporting Advisers: Form ADV due March 30, 2012
Ensure reports are consistent with investor expectations
Steps to take to prepare for reporting:
identify reporting entity and qualifying exemptions;
review adviser structure (note that ownership of adviser entity must be publicly disclosed);
complete necessary restructuring in time for registration/reporting
Familiarize fund personnel with Form ADV and new operational restrictions if relying upon new exemptions

8. Sample of Compliance Policies and Procedures to Consider
Policy
Reporting Advisers
Registered Advisers
Insider Trading
Required
Pay-to-Play Policy
Anti-Money Laundering
Recommended
Information Security
Foreign Corrupt Practices Act
Code of Ethics
Advertising
Compliance
Books and Records
Brochure Delivery
Compensation Prohibition