Exempt Reporting Advisers and Private Fund Advisors

Now that you understand the standard registration framework, you should know that certain advisers are exempt from full registration, but not from all oversight.

The Concept of Exempt Reporting

The Dodd-Frank Act created a middle ground between full SEC registration and no federal oversight at all. Exempt Reporting Advisers (ERAs) are advisers who are exempt from full registration but must still file abbreviated reports with the SEC.

The key principle: these advisers manage private money for sophisticated investors, so full registration's investor protections are less necessary, but the SEC still wants visibility into their activities.

Types of Exempt Advisers

Private Fund Advisers (Investment Advisers Act Section 203)

  • Who qualifies: Advisers solely to qualifying private funds (3(c)(1) or 3(c)(7) funds)
  • AUM threshold: Less than $150 million in AUM in the U.S.
  • Registration: Exempt from full SEC registration
  • Reporting: Must file abbreviated Form ADV (Part 1 items only) as an ERA

Venture Capital Fund Advisers

  • Who qualifies: Advisers solely to venture capital funds
  • AUM threshold: No AUM threshold (exempt regardless of size)
  • Registration: Exempt from full SEC registration
  • Reporting: Must file as an ERA

Exam Tip: Gotchas

  • The $150M threshold applies to private fund advisers, NOT venture capital fund advisers. Venture capital advisers are exempt regardless of how much they manage. The exam may try to apply the $150M limit to a VC adviser.

ERA Filing Requirements (SEC Rule 204-4)

Even though ERAs are exempt from full registration, they must:

  • File a subset of Form ADV Part 1 items with the SEC
  • Report information about their private fund activities
  • File within 60 days of claiming the exemption
  • Update the filing annually

The information filed includes:

  • Basic identifying information
  • Form(s) of organization
  • Disciplinary history
  • Information about the private funds they advise

Exam Tip: Gotchas

  • "Exempt" does not mean invisible. ERAs must still file abbreviated Form ADV with the SEC. The exemption is from full registration, not from all oversight.
  • The 3(c)(1) and 3(c)(7) references are to Investment Company Act exclusions that define what counts as a "private fund." These are not adviser-specific rules.

State Treatment of Private Fund Advisers

  • NASAA Model Rule: States may provide registration exemptions for advisers to private funds that are consistent with the federal exemptions
  • States generally cannot require an ERA to fully register at the state level if they qualify for the federal exemption
  • However, states retain antifraud authority over all advisers operating within their borders

Exam Tip: Gotchas

  • States retain antifraud authority even over exempt advisers. An ERA that qualifies for a federal exemption still cannot commit fraud in any state where it operates.