Foreign investment firms with more than 15 US-based LPs, at least one office in the US and more than $25 million in combined US investor assets will have to register with the US Securities and Exchange Commission under the financial reform bill signed this week by President Barack Obama.
“The bill will have a big impact on non-US private equity funds. The Advisers Act means there will be two regulatory regimes for non-US funds – their home country and now the US,” said James Seevers, head of the private equity practice group at Virginia-based law firm, Hunton & Williams, in an interview.
Under the Dodd-Frank Act, a foreign investment firm would be exempt from registering with the SEC if the firm has no place of business in the US; has fewer than 15 clients and investors in the US; and has less than $25 million in combined US investor assets.
The exemption is extremely narrow and firms based outside of the US will need to assess whether they need to form a US investment advisor to manage assets in the US or whether the final SEC rules and regulations provide relief from any of the requirements of the Advisers Act.
“This provision could potentially bring many foreign investment advisors with very few United States contacts under the ambit of SEC registration. The exemption may ultimately affect foreign advisors' decisions on whether to seek US investors,” according to a client brief from US-based law firm Gibson Dunn.
There is, however, some wiggle room. Depending on the SEC’s definition of venture capital fund, a non- US advisor may be able to rely on the venture capital fund advisor exemption.
“We still need to see how the SEC will define venture capital funds. That is something a lot of firms are looking at,” said Seevers.