MARCH 2005
Investment Management
Registered Investment Advisers Must Now Disclose Offshore
Funds and Other Funds They Advise on Form ADV
INTRODUCTION
One aspect of the SEC’s 2004 hedge fund adviser registration rule that did not receive much attention was a
revision to Form ADV that now requires registered investment advisers to list the “private funds” they advise. Registered investment advisers must list on
Schedule D “each limited partnership in which [the investment adviser] or a related person is a general partner, each limited liability company for which [the investment adviser] or a related person is a manager, and
each private fund that [the investment adviser]
advise[s].” (emphasis added) A “private fund” is one
that:
■
would be subject to regulation under the Investment Company Act of 1940 but for the exceptions
from the definition of “investment company” provided in Section 3(c)(1) or Section 3(c)(7) of that
Act;
■
permits investors to redeem their interests within
two years of purchase; and
■
offers interests based on the investment advisory
skills, ability or expertise of the investment adviser.
Every 3(c)(1) and 3(c)(7) fund advised by the registered investment adviser must be listed. Offshore
funds that are offered to U.S. persons must be listed.
Funds that are not offered based on the registered investment adviser’s expertise can be excluded.
NON-DISCRETIONARY AND SUB-ADVISORY
ACCOUNTS
One issue is that the rule and the related amendments
to Form ADV do not consider whether private funds
that an investment adviser sub-advises must be disclosed in Item 7.B of Part 1A and Schedule D as well.
Elsewhere in the new rule, the SEC provides guidance
as to when a “resident” is a U.S. resident for purposes
of counting how many U.S. residents are invested in a
private fund an offshore investment adviser advises.
The SEC recommends that an adviser should look to
the location of the person for whose benefit the account is held in the case of discretionary or non-discretionary accounts managed by another investment
adviser. As the SEC includes non-discretionary accounts managed by another investment adviser in the
context of counting U.S. investors by offshore investment advisers, we believe that, absent specific guidance from the SEC or its staff to the contrary, it would
be prudent if registered investment advisers include
non-discretionary and sub-advisory accounts when responding to Item 7.B of Part 1A of Form ADV and
Schedule D.
FILING DEADLINES
If a registered investment adviser updated and finalized Part 1A of its Form ADV prior to March 8, 2005,
such registered investment adviser will have to update
Part 1A of its Form ADV again with respect to Item 7.B
prior to February 1, 2006. In other words, Item 7.B
will have to be updated prior to the 2006 annual ADV
Kirkpatrick & Lockhart Nicholson Graham LLP
update. If a registered investment adviser did not finalize Part 1A of its Form ADV prior to March 8, 2005,
such registered investment adviser will have to answer
Item 7.B in its amended form and provide additional
information in Schedule D, as necessary, before finalizing Part 1A of its Form ADV.
ing the SEC’s new hedge fund adviser registration
rule, please refer to Kirkpatrick & Lockhart Nicholson
Graham LLP’s Investment Management Alert dated
December 2004.
Nicholas S. Hodge
FURTHER INFORMATION
nhodge@klng.com
This Investment Management Alert is solely dedicated
to the amendments to Item 7.B of Part 1A of Form
ADV, which the rule requires currently registered investment advisers to complete between March 8, 2005
and February 1, 2006. For further information regard-
617.261.3210
Beth Clark
bclark@klng.com
202.778.9432
Kirkpatrick & Lockhart LLP maintains one of the leading investment management practices in the United States, with
more than 70 lawyers devoting all or a substantial portion of their practice to this area and its related specialties.
We represent mutual funds, closed-end funds, hedge funds, offshore funds, insurance companies, broker-dealers, investment advisers, retirement plans, banks and trust companies and other financial institutions. We also regularly represent
mutual fund distributors, independent directors of investment companies and service providers to the investment management industry. In addition, we frequently serve as outside counsel to industry associations on a variety of projects,
including legislative and policy matters.
We work with clients in connection with the full range of investment company industry products and activities, including all types of open-end and closed-end investment companies, funds of hedge funds, variable insurance products, private and offshore investment funds and unit investment trusts. Our practice involves all aspects of the investment company business.
We invite you to contact one of the members of the practice, listed below, for additional assistance. You may also visit
our website at www.kl.com for more information, or send general inquiries via email to
investmentmanagement@kl.com.
BOSTON
Michael S. Caccese
Philip J. Fina
Mark P. Goshko
Thomas Hickey III
Nicholas S. Hodge
George Zornada
617.261.3133
617.261.3156
617.261.3163
617.261.3208
617.261.3210
617.261.3231
mcaccese@kl.com
pfina@kl.com
mgoshko@kl.com
thickey@kl.com
nhodge@kl.com
gzornada@kl.com
LOS ANGELES
William P. Wade
310.552.5071
wwade@kl.com
NEW YORK
Jeffrey M. Cole
212.536.4823
Ricardo Hollingsworth 212.536.4859
Beth R. Kramer
212.536.4024
Richard D. Marshall
212.536.3941
Keith W. Miller
212.536.4045
Scott D. Newman
212.536.4054
jcole@kl.com
rhollingsworth@kl.com
bkramer@kl.com
rmarshall@kl.com
kmiller@kl.com
snewman@kl.com
SAN FRANCISCO
Eilleen M. Clavere
Jonathan D. Joseph
David Mishel
Timothy B. Parker
Mark D. Perlow
Richard M. Phillips
eclavere@kl.com
jjoseph@kl.com
dmishel@kl.com
tparker@kl.com
mperlow@kl.com
rphillips@kl.com
415.249.1047
415.249.1012
415.249.1015
415.249.1042
415.249.1070
415.249.1010
WASHINGTON
Clifford J. Alexander 202.778.9068
Diane E. Ambler
202.778.9886
Mark C. Amorosi
202.778.9351
Catherine S. Bardsley 202.778.9289
Arthur J. Brown
202.778.9046
Arthur C. Delibert
202.778.9042
Jennifer R. Gonzalez 202.778.9286
Robert C. Hacker
202.778.9016
Kathy Kresch Ingber 202.778.9015
Michael J. King
202.778.9214
Rebecca H. Laird
202.778.9038
Cary J. Meer
202.778.9107
R. Charles Miller
202.778.9372
Dean E. Miller
202.778.9371
R. Darrell Mounts
202.778.9298
C. Dirk Peterson
202.778.9324
David Pickle
202.778.9887
Alan C. Porter
202.778.9186
Theodore L. Press
202.778.9025
Francine J. Rosenberger 202.778.9187
Robert H. Rosenblum 202.778.9464
William A. Schmidt
202.778.9373
Lori L. Schneider
202.778.9305
Lynn A. Schweinfurth 202.778.9876
Donald W. Smith
202.778.9079
Martin D. Teckler
202.778.9890
Robert A. Wittie
202.778.9066
Robert J. Zutz
202.778.9059
calexander@kl.com
dambler@kl.com
mamorosi@kl.com
cbardsley@kl.com
abrown@kl.com
adelibert@kl.com
jgonzalez@kl.com
rhacker@kl.com
kingber@kl.com
mking@kl.com
rlaird@kl.com
cmeer@kl.com
cmiller@kl.com
dmiller@kl.com
dmounts@kl.com
dpeterson@kl.com
dpickle@kl.com
aporter@kl.com
tpress@kl.com
francine.rosenberger@kl.com
rrosenblum@kl.com
william.schmidt@kl.com
lschneider@kl.com
lschweinfurth@kl.com
dsmith@kl.com
mteckler@kl.com
rwittie@kl.com
rzutz@kl.com
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Kirkpatrick & Lockhart Nicholson Graham (K&LNG) has approximately 950 lawyers and represents entrepreneurs, growth and middle market companies and leading FORTUNE 100 and
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© 2005 KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP. ALL RIGHTS RESERVED.