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.

What Is 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.

What Types of Exempt Advisers Exist?

Private Fund Advisers

• 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.

What Must an ERA Still File?

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.

How Do States Treat Private Fund Advisers?

• NASAA Model Rule: States may (not must) adopt their own registration exemption for advisers to private funds, generally consistent with the federal exemption's conditions
• Federal ERA status does NOT automatically preempt state registration. A private-fund adviser must separately qualify for the state's own exemption; the two exemptions are not the same filing
• However, states retain antifraud authority over all advisers operating within their borders

Exam Tip: Gotchas

• Don't assume federal ERA status is a free pass at the state level. The adviser still needs the state's own private-fund-adviser exemption (most states have adopted one, but it's a separate condition, not automatic from the federal exemption).
• 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.

What Should You Check on Exam Day?

• Can you explain why ERAs exist: a middle ground between full registration and no oversight at all?
• Do you know the $150 million AUM threshold for the private fund adviser exemption, and that venture capital fund advisers have no threshold at all?
• Can you list what an ERA must still file, and how quickly (60 days to claim the exemption, annual updates after)?
• Do you know why 3(c)(1) and 3(c)(7) are Investment Company Act exclusions, not adviser-specific rules?
• Can you state why an ERA is never immune from a state's antifraud authority, even when it qualifies for a federal exemption?