What are the registration requirements for private funds? Before we answer this question, we must determine whether a private fund is required to register with the Securities and Exchange Commission (“SEC”). General compliance with the securities laws involves a thorough understanding of the Securities Act of 1933. As a general rule, a private fund has two main exemptions from registration with the SEC. The first is listed under Rule 506(b) of Regulation D. This rule states that a securities offering is exempt from registration if (1) the issuer does not solicit or advertise to market the securities (2) the issuer only offers or sells securities to accredited investors, and (3) the issuer takes reasonable care to ensure that the purchasers are not buying the securities with the intent to resell the securities.
A second general exemption from registration for private funds, also found in Regulation D, is Rule 506(c). This rule provides all the rules provided in Rule 506(b) with the exception that the prohibition on general solicitation does not apply and the issuer of the security must take “reasonable steps to ensure that each purchaser is an accredited investor.”
Although, a private fund may be exempt from registration under Rule 506(b) and 506(c) of Regulation D, a Private Fund adviser is no longer exempt from registration. In 2011, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) was passed into law. In this new overhaul of the financial services division, Title IV of this Act eliminated the private fund advisor exemption that was previously available under the Investment Advisers Act. This required private fund advisers to register with the SEC under the Investment Advisers Act.
If an investment advisor of a private fund is required to register, the investment adviser will be required to file a Form PF with the SEC. There are several different requirements depending upon how many private funds the investment adviser manages and the size of funds that will determine when the Form PF must be filed every year. However, the specifics of a Form PF will be the subject a future article.
The rules and compliance requirements (especially for private fund advisers) are complex, sometimes confusing, and can overlap. Therefore, many of our clients find a benefit in hiring our office as their General Compliance Counsel.
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If you have a legal question regarding your business or you are interested in retaining our office as your General Compliance Counsel, please contact our office at (513) 241-0400 to schedule an initial consultation. You can also fill out our contact form on this website and one of our attorneys will respond to you shortly.