On January 18, 2012, the Securities and Exchange Commission (the “SEC”)  issued a No-Action letter (the “2012 ABA Letter”) to the American Bar Association (the “ABA”), Business Law Section, providing guidance as to when certain entities affiliated with a registered investment adviser would be permitted to rely on the registered investment adviser’s registration, and would not be required to register separately as investment advisers under the Investment Advisers Act of 1940 (the “Advisers Act”).  The 2012 ABA Letter confirms the SEC’s guidance on these issues in Question and Answer G.1. of its December 8, 2005 letter addressed to the ABA’s Subcommittee on Private Investment Entities and responds to additional related questions.  Question and Answer G.1. is referred to as the “2005 ABA Letter” and is further described below.  The continued applicability of the 2005 ABA Letter had been called into question by the amendments resulting from the repeal of the section 203(b)(3) private adviser exemption under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).

It is is important to note that the SEC’s relief in the 2012 ABA Letter applies only to entities affiliated with a registered investment adviser with its principal office and place of business in the U.S. The SEC indicated that, in the future, it may address questions about advisers with their principal offices and places of business outside the U.S., if provided with further information or fact patterns.

Advisers that are Special Purpose Vehicles (“SPVs”) Related to a Private Fund’s Registerd Investment Adviser.  The SEC confirmed its guidance in the 2005 ABA Letter that the SEC would permit an adviser to private funds to include general partners and similar special purpose vehicles (“SPVs”) of the adviser’s affilated funds on the registered investment adviser’s Form ADV filing under the following conditions:

• the SPV was established by the investment adviser to act as the private fund’s general partner or managing member;
• the SPV’s formation documents designate the investment adviser to manage the private fund’s assets;
• all of the investment advisory activities of the SPV are subject to the Advisers Act and the rules thereunder, and the SPV is subject to examination by the SEC; and
• the registered adviser subjects the SPV, its employees and persons acting on its behalf to the adviser’s supervision and control (e.g., they are subject to the registered adviser’s code of ethics and compliance policies and procedures), such that the SPV, all of its employees and the persons acting on its behalf would be “persons associated with” the registered adviser (as that term is defined in section 202(a)(17) of the Advisers Act).

If these conditions are met, the SPV could rely upon the registered adviser’s registration with the SEC in not registering itself, provided that any disciplinary history that the SPV would have been required to disclose had it registered separately is disclosed on the registered adviser’s Form ADV.

Multiple SPVs and SPVs with Independent Directors.  The 2012 ABA Letter extends the position above to a registered adviser with multiple SPVs.  In addition, the 2012 ABA Letter provides that an SPV with directors who are independent of the registered adviser or a related SPV (and thus are not subject to the registered adviser’s supervision and control) could nonetheless rely on the registered adviser’s registration if the other 2005 ABA Letter conditions (described above) are met. The staff acknowledged that independent directors “frequently are engaged to represent the interests of investors in a private fund or to permit the fund to satisfy certain legal obligations, such as engaging in certain transactions or practices that may otherwise be restricted under applicable law.”

Group of Related Advisers Conducting a Single Advisory Business. The staff recognized that, although, for various tax, legal and regulatory reasons, advisers to private funds may be organized as separate legal entities, these advisers may be part of a group of related advisers that in reality conduct a single advisory business.  If the advisers in the group meet the following conditions, the staff would consider the advisers to be conducting a “single advisory business” and would permit one of the advisers in the group (the “filing adviser”) to file a single Form ADV covering each adviser that is part of the group (each such adviser, a “relying adviser”):

• The filing adviser and the relying advisers advise only private funds and separate account clients (a) that are qualified clients (under Advisers Act Rule 205-3), (b) that are otherwise eligible to invest in the private funds advised by the advisers, and (c) whose accounts pursue investment objectives and strategies substantially similar or otherwise related to those private funds.

• Each relying adviser, its employees and the persons acting on its behalf are “persons associated with” the filing adviser because they are subject to the filing adviser’s supervision and control.

• The filing adviser’s principal office and place of business is in the U.S. so that all of the Advisers Act’s substantive provisions and rules apply to the filing adviser’s and each relying adviser’s dealings with each of its clients (without regard as to whether any client or the filing adviser or the relying adviser providing the advice is a U.S. person

• The advisory activities of each relying adviser are subject to the Advisers Act and rules and each relying adviser is subject to SEC examination

• All of the advisers operate under a single code of ethics adopted in accordance with Advisers Act rule 204A-1 and a single set of written policies and procedures adopted and implemented in accordance with Advisers Act rule 206(4)-7 and administered by a single chief compliance officer in accordance with that rule.

• The filing adviser discloses in its Form ADV (Miscellaneous Section of Schedule D) that it and its relying advisers are together filing a single Form ADV in reliance on the position expressed in this letter and identifies each relying adviser by completing a separate Section 1.B., Schedule D, of Form ADV for each relying adviser and identifying it as such by including the notation “(relying adviser).”

• To fulfill the Form ADV requirements, while using a single registration, the filing adviser must file, and update as required, a single Form ADV (Parts 1 and 2) that relates to, and includes all information concerning, the filing adviser and each relying adviser (e.g., disciplinary information and ownership information on Schedules A and B), and must include this same information in any other reports or filings it must make under the Advisers Act or the rules thereunder (e.g., Form PF).

• Note:  This single Form ADV on behalf of a group of advisers is available only if none of the advisers is prohibited from registering with the SEC by Advisers Act Section 203A (e.g., each of the advisers in the group individually must have sufficient assets under management to qualify to register with the SEC or qualify for an exemption from section 203A’s prohibition).

• Note:  Any facts or circumstances that would argue against such treatment should be considered in determining whether or not the advisers are conducting a “single advisory business.”