The Investment Advisers Act of 1940 defines the responsibilities and duties of investment advisers. It falls under U.S Federal Law, which states who is eligible to register with the Securities and Exchange Commission (SEC) to become an adviser under the supervision and control of the Act to protect investors. The Investment Advisers Act of 1940 states that all persons or firms under the profession of investment advisory service should register with the SEC to become eligible for the role and look after the client’s interest with utmost honesty and integrity. There are certain exemptions to the Act.
- Exemptions related to advisers of private funds
An adviser does not have to register with the SEC if it only advises private funds in the United States whose total asset under management is below $150 million. This kind of fund that satisfies Section 3(c) (1) or Section 3(c) (7) is a pooled investment that has less than 100 investors and does not intend to make any public offering.
- Exemptions related to advisers of venture capital
An adviser does not have to register with the SEC if it only advises venture capital funds. This fund should also satisfy Section 3(c)(1) or Section 3(c)(7) and follow the strategies of investment as “venture capital”. A minimum of 80% of the fund should be invested in the equity of private companies. No more than 15% of its capital should be borrowed or used as a guarantee. If the fund borrows money, it should be less than or equal to 120 days. The investors cannot redeem or withdraw the interest from their investment in the fund.
- Exemptions of registration
If the adviser manages assets less than $25 million, it must register with the state’s regulator of securities, where the adviser’s office is located. It is exempted from registering with the SEC.
Even though an advisor meets an exemption they may still be required to file as an Exempt Reporting Advisor. SPV Organizers typically meet an advisor exemption but should consult with legal counsel regarding filing as an exempt reporting advisor.