Investment Advisers Act Considerations for Foreign Investment Advisers

The Investment Lawyer
Covering Legal and Regulatory Issues of Asset Management
Copyright © 2015 by CCH Incorporated. All Rights Reserved.
A
s of the end of 2013, the United States
accounted for nearly $23 trillion in retirement
assets,1
$15 trillion in mutual fund assets,2
and nearly $10.8 trillion in assets attributable to high-
net-worth individuals.3
These amounts of investable
assets, paired with a reliable court system for enforce-
ability of contracts, as well as a mature and robust
securities market,4
offer foreign asset managers sign-
ificant business opportunities in the United States. It
is then not surprising that, between June 2000 and
June 2013, the share of US investment assets man-
aged by foreign-owned investment advisers or their
affiliates increased from approximately $898 billion
(or 12.6 percent of the market) to approximately
$2,153 billion (or 15.8 percent of the market).5
An asset manager’s ability to enjoy the business
opportunities offered by the United States comes at
a cost of compliance with a multitude of federal and
state securities laws. This article focuses on the regu-
latory burdens the Investment Advisers Act of 1940
(Advisers Act) imposes on investment advisers whose
principal office and place of business are located out-
side of the United States (foreign advisers) and who
wish to do business in the United States. Generally,
the degree to which the Advisers Act applies to activ-
ities of a foreign adviser depends on the degree to
which the foreign adviser wishes to avail itself of the
US jurisdictional benefits.6
Such benefits include,
among other things, advertising and marketing an
adviser’s services in the United States, executing
transactions on US exchanges, and retaining clients
who are US persons.
On one side of the compliance spectrum are
foreign advisers who choose to register with the US
Securities and Exchange Commission (SEC) under
the Advisers Act. While these advisers take on the
highest regulatory burden, they are also given the
most flexibility to operate in the United States. These
advisers may advertise their services in the United
States, execute transaction on US exchanges, and
they are not subject to limits on the number of US
persons they may have as clients or the amount of
assets they may manage in the United States. On the
opposite end of the spectrum are foreign advisers who
are not regulated by the Advisers Act. While these
advisers may not be burdened by the requirements,
restrictions, or prohibitions of the Advisers Act, they
are very limited in the degree to which they can avail
themselves of the US jurisdictional benefits.7
This article outlines the ways foreign advisers
can operate in the United States and summarizes the
regulatory burdens the Advisers Act imposes on each
of the ways. The article also addresses certain busi-
ness activities in which foreign advisers may engage
in the United States without falling under the regu-
latory purview of the Advisers Act.
Investment Advisers Act Considerations
for Foreign Investment Advisers
ByAlexandre V. Rourk
VOL. 22, NO. 4 • APRIL 2015

2 THE INVESTMENT LAWYER
I. Who is an Investment Adviser?
Deﬁnition
The Advisers Act defines “investment adviser”
as “any person who, for compensation, engages in
the business of advising others, either directly or
through publications or writings, as to the value of
securities or as to the advisability of investing in,
purchasing, or selling securities, or who, for com-
pensation and as part of a regular business, issues or
promulgates analyses or reports concerning securi-
ties.”8
To be considered an investment adviser a per-
son must satisfy all three elements—compensation,
engaging in the business, and advising others about
securities—and, over the years, the SEC Staff clari-
fied these elements through numerous releases and
no-action letters.
The SEC considers the receipt of any economic
benefit, whether in the form of an advisory fee, some
other fee relating to the total services rendered, a
commission, or some combination of such fees to
be “compensation” for the purpose of satisfying the
compensation element of the definition. It is worth
noting that the person receiving the advice need not
be the one paying the compensation to the invest-
ment adviser.9
To be considered an investment adviser a person
must also be engaged in the business of providing
investment advice. While the provision of invest-
ment advice need not be the sole or the primary
activity of the person, the SEC deems the person to
be engaged in the business of providing investment
advice if he or she:
(i) holds him- or herself out as an investment
adviser,
(ii) receives compensation that represents a clearly
definable charge for providing investment
advice, or
(iii) provides investment advice on such a basis that
it constitutes a business activity occurring with
some regularity.10
Finally, a person provides advice concerning
securities if that person provides:
(i) advice about specific securities, such as stocks,
bonds, mutual funds, limited partnerships,
and commodity pools;11
(ii) advice about market trends;12
(iii) advice about the selection and retention of
other investment advisers;13
(iv) advice about the advantages of investing in
securities versus other types of investments;14
(v) a selective list of securities;15
or
(vi) advice about asset allocation.16
The SEC Staff does not consider advice about
physical real estate, coins, precious metals, or com-
modities to be advice about securities.17
Registration Requirement
Section 203(a) of the Advisers Act requires any
person who falls under the definition of investment
adviser and makes use of the mails or any means or
instrumentality of interstate commerce in connec-
tion with his or its business as an investment adviser
to register with the SEC, unless the adviser is able to
relyonanexemption.18
Thesameregistrationrequire-
ment applies to foreign advisers, as the SEC deems
foreign advisers to not have a principal office and
place of business in a US state that regulates invest-
ment advisers and, consequently, “retains regulatory
responsibility for…foreign advisers doing business
in the United States.”19
The SEC does not permit
substituted compliance with a foreign regulatory
body in lieu of registration under the Advisers Act.20
II. Investment Advisers Act Regime
Registration with the SEC under the Advisers
Act subjects investment advisers to numerous
requirements, restrictions, and prohibitions.
Filing Requirements
Investment advisers register under the Advisers
Act by filing with the SEC Form ADV. Form

VOL. 22, NO. 4 • APRIL 2015 3
ADV, among other things, requires advisers
to disclose their ownership structure, business
practices, investment strategies, fees, conflicts
of interest, and disciplinary information. Form
ADV must be updated annually.21
Investment advisers who act as investment
advisers to one or more private funds and man-
age private fund assets of at least $150 million
must file with the SEC a report on Form PF.
Form PF, among other things, requires invest-
ment advisers to disclose information regarding
their private funds’ leverage, liquidity, concen-
tration, and risk profile.22
Form PF must be
updated annually.23
Investment advisers are liable for any mate-
rial misstatements in the documents they file
with the SEC24
and those documents generally
become available to the general public upon
filing.25
Operational Requirements
Investment advisers must maintain certain
books and records, which are subject to periodic
and special examinations by the SEC.26
Investment advisers must prepare and maintain
a compliance manual,27
a code of ethics,28
and
policies and procedures designed to deter insider
trading by the investment adviser or its associ-
ated persons.29
Investment advisers must also comply with the
Advisers Act’s proxy voting requirements.30
Restrictions
Investment advisers must comply with strict
custody,31
advertising,32
and client solicitation
requirements.33
Prohibitions
Investment advisers are subject to the Advisers
Act’s anti-fraud provisions and prohibitions
against misrepresentation.34
Investment advisers are subject to the Advisers
Act’s prohibition against providing advisory
services for compensation to government enti-
ties whose employee received a financial contri-
bution from the investment adviser, known as
the “pay-to-play” prohibition.35
With certain exceptions, investment advisers
are also subject to the Advisers Act’s prohibi-
tion against charging clients performance-based
fees.36
Jurisdictional Matters
While the substantive provisions of the Advisers
Act generally would not apply to a registered
foreign adviser’s non-US clients, the SEC Staff
expects registered foreign advisers to keep cer-
tain records and to provide the SEC access to
the adviser’s foreign personnel with respect to all
of their activities.37
III. Options for Foreign Advisers
Registered Investment Advisers
The Advisers Act allows foreign and domestic
investment advisers who choose to register with the
SEC to operate under the same regulatory regime.
While the Advisers Act imposes the greatest regula-
tory burden on investment advisers registered with
the SEC (they are subject to all of the requirements,
restrictions, and prohibitions of the Advisers Act),
it also provides them with the greatest operational
flexibility. Investment advisers registered under
the Advisers Act do not have a limit on the num-
ber or type of clients to which they can provide
investment advice and they are not limited on the
amount of assets they can manage in the United
States. Moreover, only investment advisers registered
with the SEC under the Advisers Act may provide
investment advice to investment companies regis-
tered under the Investment Company Act of 1940
(1940 Act).
In addition to allowing foreign advisers to reg-
ister with the SEC, the Advisers Act allows foreign
advisers to avail themselves of several exemptions
from registration, provided that their ability to

clients, including non-US clients, must be venture
capital funds.42
As an example, let us suppose there exists an
investment manager whose principal office and place
of business are located in Dublin, Ireland. The invest-
ment manager provides investment advice to three
funds, neither of which is domiciled in the United
States. Each fund is compliant with Rule 203(l)-1
under the Advisers Act, meaning that each fund is
a private fund that represents to investors that it
pursues a venture capital strategy, does not provide
investors with redemption rights, holds at least 80
percent of its assets in directly-acquired equity secu-
rities of private companies, and does not borrow or
otherwise incur leverage equal to more than 15 per-
cent of its assets. Under this scenario the investment
manager is eligible to avail itself of the venture capi-
tal fund adviser exemption and provide investment
advice to venture capital funds in the United States
without having to register with the SEC as an invest-
ment adviser.
Let us also suppose that, some time after the
investment manager begins providing investment
advice to venture capital funds in the United States,
it agrees to begin managing an investment portfolio
for a high-net-worth individual based in London,
United Kingdom. The investment manager sets up
a managed account for this person and begins pro-
viding investment advisory services to the managed
account while continuing to provide investment
advisory services to its venture capital funds. Under
this scenario, the investment manager has a client
that is not a venture capital fund. As a result, the
investment manager would lose its eligibility for the
venture capital fund adviser exemption and may be
required to register with the SEC as an investment
adviser if it wished to continue to conduct invest-
ment advisory business in the United States.43
b) Private FundAdviser Exemption
Section 203(m) of the Advisers Act exempts
from registration with the SEC an investment
adviser:
operate in the United States is limited accordingly.
The Advisers Act provides three exemptions from
registration targeted specifically at foreign advisers.38
Exempt Reporting Advisers
a)VentureCapital FundAdviser Exemption
Section 203(l) of the Advisers Act exempts from
registration with the SEC investment advisers who
only provide advice to “venture capital funds.” The
SEC does not restrict the number of funds an invest-
ment adviser may manage, number of investors in
those funds, or assets under management an invest-
ment adviser may have.
Rule 203(l)-1 under the Adviser’s Act defines a
venture capital fund as a private fund that:
(i) represents to investors that it pursues a venture
capital strategy;
(ii) does not provide investors with redemption
rights;
(iii) holds at least 80 percent of its assets39
in
directly-acquired equity securities of compa-
nies that, at the time of investment, have not
made a public offering in the United States
or abroad and that do not receive the fund’s
investment as part of a leveraged buy-out
transaction; and
(iv) does not borrow or otherwise incur leverage
equal to more than 15 percent of its assets, and
then only for a term of no more than 120 days.40
For purposes of the venture capital adviser
exemption, the SEC defines “private fund” as any
investment company that has not registered under
the 1940 Act, has not elected to be treated as a busi-
ness development company, and any foreign issuer
that has not offered or sold its securities in the
United States or to US persons in a manner incon-
sistent with being a US private fund.41
The practical
implication of the SEC’s definition of private fund is
that, in order for an investment adviser to be eligible
for the venture capital adviser exemption, all of its

VOL. 22, NO. 4 • APRIL 2015 5
(i) who has no client that is a US person except
for one or more private funds; and
(ii) all of whose assets managed at a place of busi-
ness in the United States are solely attributable
to private fund assets and total less than $150
million, which has to be assessed annually.
For purposes of the private fund adviser exemp-
tion, the SEC defines “private fund” as any invest-
ment company that has not registered under the
1940 Act and has not elected to be treated as a busi-
ness development company. The practical implica-
tion of the private fund adviser exemption is that a
foreign adviser may exclude from consideration all
non-US clients when determining its eligibility for
the exemption.44
As an example, let us continue the previous hypo-
thetical. We know that the Dublin-based investment
manager provides investment advice to three foreign
funds. We also know that the investment manager
provides investment services to a managed account
based in London. As neither of these clients is a pri-
vate fund that is managed at a place of business in
the United States, the investment manager is eligible
for the private fund adviser exemption and is able
to provide investment advice to private funds in the
United States. The investment manager’s eligibility
would remain intact even if some of the investors in
its foreign funds were US persons.45
Let us also suppose that that the investment
manager sets up an office in the United States for the
purpose of providing investment advice to two pri-
vate funds that together total $100 million in assets
under management. So far, the investment manager
is in compliance with the conditions of the private
fund adviser exemption. But what if some time after
the investment manager begins providing invest-
ment advice to the two private funds, it decides to
begin managing a US-based separate account with
$20 million in assets? Although the investment
manager remains compliant with the assets under
management condition of the exemption, it now
has a non-private fund client that is a US person.
Under this scenario, the investment manager would
lose its eligibility for the private fund adviser exemp-
tion and may be required to register with the SEC
as an investment adviser if it wishes to continue to
conduct investment advisory business in the United
States.
The SEC considers investment advisers to ven-
ture capital funds and private funds “exempt report-
ing advisers.” Exempt reporting advisers present a
middle ground for foreign advisers wishing to access
US securities markets: they are given significant flex-
ibility in their operations (for example, no limit on
number of clients or assets under management for
advisers to venture capital funds, no limit on num-
ber of clients in the United States and no restric-
tions on non-US clients for advisers to private funds)
in return for compliance with a reduced regulatory
burden of the Advisers Act.
Exempt reporting advisers are not required to
register with the SEC under the Advisers Act, but
they remain subject to certain of its provisions.
Exempt reporting advisers are required to keep cer-
tain books and records, which may be subject to
examination by the SEC.46
Exempt reporting advis-
ers are required to prepare, maintain, and enforce
policies and procedures designed to deter insider
trading by the investment adviser or its associated
persons.47
Exempt reporting advisers also are sub-
ject to the anti-fraud48
and pay-to-play49
provisions
of the Advisers Act. Exempt reporting advisers must
file electronically with the SEC annual reports on
Form ADV50
and be subject to liability for any
material misstatements in their filings.51
Foreign Private Adviser Exemption52
Section 203(b)(3) of the Advisers Act exempts
from registration with the SEC investment advis-
ers who are considered “foreign private advisers.”53
Rule 202(a)(30)-1 under the Adviser’s Act defines
“foreign private adviser” as an investment adviser
who:
(i) has no place of business in the United States;

(ii) has, in total, fewer than 15 clients in the United
States and investors in the United States in pri-
vate funds advised by the adviser;
(iii) has aggregate assets under management attrib-
utable to clients and investors in the United
States of less than $25 million; and
(iv) does not hold itself out generally to the public
in the United States as an investment adviser.54
The SEC considers an investment adviser’s “place
of business” to be the investment adviser’s office or
any other location that is held out to the general
public as a location at which the investment adviser
provides investment advisory services, solicits, meets
with, or otherwise communicates with clients.55
The
SEC requires foreign private advisers to look through
private funds and count both its direct clients and
investors (or ultimate beneficiaries, where appropri-
ate) in the private funds the adviser manages. The
SEC clarified that a foreign private adviser does not
need to “double count” persons who are investors
in more than one fund advised by the investment
adviser or are both a client of the adviser and an
investor in a fund the adviser manages.56
As an example, let us further modify the previ-
ous hypothetical. We know that the Dublin-based
investment manager provides investment advice to
three foreign funds. We also know that the manager
provides investment services to a managed account
based in London. Let us also suppose that none of
the investors in the private funds are US persons and
the investment manager has no place of business (or
any presence) in the United States.
Let us also suppose that the investment manager
agrees to begin providing investment advice to two
US-based private funds that, together, total $24 mil-
lion in assets under management. So far, the invest-
ment manager is in compliance with the conditions of
the foreign private fund adviser exemption. But what
if some time after the investment manager begins pro-
viding investment advice to the two private funds, it
accepts two investors who are US persons into one
of its foreign funds, each at an initial investment
of $1 million? Although the investment manager
remains compliant with the number of clients and US
presence and activity conditions of the exemption, it
now has over $25 million in aggregate assets under
management attributable to US clients and investors
who are US persons. Under this scenario, the invest-
ment manager would lose its eligibility for the foreign
private fund adviser exemption and may be required
to register with the SEC as an investment adviser if
it wishes to continue to provide investment advisory
services to clients and investors who are US persons.
The foreign private adviser exemption presents
the least burdensome operating environment for a
foreign investment adviser who wishes to provide
investment advisory services in the United States.
Investment advisers wishing to avail themselves of
the foreign private adviser exemption must remem-
ber, however, that with a limited regulatory burden
imposed by the Advisers Act comes a very limited
flexibility in the way foreign private advisers may
operate in the United States. While foreign private
advisers are not required to register with the SEC
under the Advisers Act and are subject only to the
anti-fraud57
and pay-to-play58
provisions of the
Advisers Act, they are limited in the number of cli-
ents and amount of assets under management they
may receive from the United States.
IV. Common Non-Advisory
Activities of Foreign Advisers
in the United States
There are instances where a foreign adviser is
able to conduct business in the United States that
does not subject the adviser to the regulatory purview
of the Advisers Act. In those instances, despite the
fact that the foreign adviser avails itself of the US
jurisdictional benefits, it is not required to register
with the SEC as an investment adviser.
Administrative, Due Diligence,
and Research Activities
Whether a foreign adviser has a place of business
in the United States may determine the extent to

VOL. 22, NO. 4 • APRIL 2015 7
which the foreign adviser is deemed to be enjoying
the US jurisdictional benefits, which, in turn, may
determine whether the foreign adviser must register
under the Advisers Act. The SEC notes that whether
a foreign adviser has a place of business in the United
States is a “conduct and effects” consideration.59
The
SEC does not consider a US office where an invest-
ment adviser performs only administrative and back-
office activities to be a US place of business, so long as
those activities do not involve communicating with
clients and are not a part of providing investment
advisory services. The SEC also does not consider a
US office where a foreign adviser conducts research
or due diligence a US place of business, provided
that a person outside of the United States makes and
implements his or her own investment decisions.
However, the SEC will consider a US office where a
foreign adviser conducts research to produce invest-
ment recommendations or influence the investment
decision-making a US place of business.60
Activities of a Subsidiary
Whether an investment adviser who conducts
business in the United States and is a subsidiary of
a foreign company must register under the Advisers
Act may depend on the intended recipient of the
investment advice. The SEC Staff does not consider
investment advice provided to a parent company by
its wholly-owned subsidiary to be advice to others
about securities. Consequently, the Staff does not
require US-based wholly-owned subsidiaries of for-
eign advisers who have been established and operate
for the sole purpose of providing investment advi-
sory services to their parent companies to register
under the Advisers Act as investment advisers. The
Staff also considers investment advice provided to a
fund that consists solely of parent company’s assets
to be investment advice to the parent company that
does not require the adviser to register under the
Advisers Act.61
Additionally, in instances where the
subsidiary had registered with the SEC as an invest-
ment adviser, the Staff will not require the parent to
register as an investment adviser, provided the parent
and the subsidiary are legally distinct entities, the
registered subsidiary is staffed with personnel who
are capable of providing investment advice, person-
nel involved in providing investment advice in the
United States are considered associated persons of
the registered investment adviser, and the SEC has
access to the personnel, as well as trading and other
records of all affiliates involved in providing invest-
ment advice in the United States.62
V. Conclusion
Foreign advisers who wish to do business in the
United States should not be deterred by the fear of
having to comply with the full regulatory burden
of the Advisers Act. As this article has shown, a for-
eign adviser’s regulatory burden is determined by the
extent of the adviser’s activities in the United States or
targeted at US persons. To that end, foreign advisers
can minimize and control their regulatory risk with
respect to the Advisers Act by determining the scope
of their activities in the United States or targeted at
US persons prior to engaging in those activities.
Alexandre (Sasha) Rourk is an attorney in the
Investment Management Group of Sullivan &
Worcester LLP and may be reached at
sasharourk@gmail.com. His practice focuses on
representation of investment companies, their
independent directors, and investment advisers.
Sasha would like to thank Caitlin Rourk and
David Mahaffey for their invaluable contribu-
tion to this article.
NOTES
1
See Investment Company Institute, 2014 Investment
Company Fact Book (54th ed.), available at http://
www.icifactbook.org.
2
Id.
3
See booz&co., “U.S. Wealth Management Survey:
Trends and Emerging Business Models,” available
at http://www.strategyand.pwc.com/media/file/US_
Wealth_Management_Survey.pdf.

4
Mary Jo White, Chair of the US Securities and
Exchange Commission, even referred to the US
securities markets as “the largest and most robust in
the world, and…fundamental to the global econ-
omy.” See Mary Jo White, “Intermediation in the
Modern Securities Markets: Putting Technology and
Competition to Work for Investors” (June 20, 2014),
available at http://www.sec.gov/News/Speech/Detail/
Speech/1370542122012#.VLk-BYrF8rQ.
5
See Investment Company Institute, “Market Access
for Regulated Fund Managers in the United States
and in the European Union” (Oct. 2013), available at
http://www.ici.org/pdf/27643.pdf. Here, “U.S. invest-
ment assets” refers to US open-end investment assets
and excludes subadvised mandates.
6
See Exemptions for Advisers to Venture Capital Funds,
Private Fund Advisers With Less Than $150 Million
in Assets Under Management, and Foreign Private
Advisers, Inv. Adv. Act Rel. No. 3222 (June 22, 2011).
7
The SEC and certain states (where applicable) none-
theless maintain jurisdiction over foreign advis-
ers by requiring a non-resident general partner or
a non-resident managing agent of any investment
adviser (whether domestic or foreign) to appoint the
Secretary of the SEC and the Secretary of State, or
equivalent officer, of the state in which the adviser
maintains its principal office and place of business
as its agent for service of process by filing Form
ADV-NR. See Form ADV-NR.
8
See §203(a) of the Advisers Act.
9
See Applicability of the Investment Advisers Act of 1940
to Financial Planners, Pension Consultants, and Other
Persons Who Provide Others with Investment Advice as
a Component of Other Financial Services, Inv. Adv.
Act Rel. No. 1092 (Oct. 8, 1987).
10
Id.
11
See Staff of the Investment Adviser Regulation
Office, Division of Investment Management, U.S.
Securities and Exchange Commission, “Regulation
of Investment Advisers by the U.S. Securities and
Exchange Commission” (Mar. 2013), available at
http://www.sec.gov/about/offices/oia/oia_investman/
rplaze-042012.pdf.
12
See Dow Theory Forecasts, SEC Staff No-Action
Letter (Feb. 2, 1978).
13
See supra n.9.
14
Id.
15
See RDM Infodustries, Inc., SEC Staff No-Action
Letter (Mar. 25, 1996).
16
See Maratta Advisory, Inc., SEC Staff No-Action
Letter (July 16, 1981).
17
See, e.g., Robert R. Champion, SEC Staff No-Action
Letter (Sept. 22, 1986).
18
Section 202(a)(11) of the Advisers Act excludes from
the definition of investment adviser banks and any
bank holding companies; lawyers, accountants, engi-
neers, and teachers whose investment advice is solely
incidental to the practice of their professions; brokers
and dealers whose investment advice is solely inci-
dental to the conduct of their business as brokers or
dealers; publishers; government securities advisers;
credit rating agencies; and family offices.
19
See Rules Implementing Amendments to the Investment
Advisers Act of 1940, Inv. Adv. Act Rel. No. 1633
(July 8, 1997). Subsidiaries of foreign advisers orga-
nized in the United States may be prohibited from
registering with the SEC under the Advisers Act and
may be required to register in the state where their
principal office and a place of business are located. In
a no-action letter, the SEC Staff noted that an invest-
ment adviser that is a subsidiary of a foreign adviser
and that maintains its principal office and a place of
business in a state that regulates investment advis-
ers is subject to the prohibitions of § 203(A) of the
Advisers Act from registration with the SEC. Thus,
an investment adviser with a principal place of busi-
ness in a state that regulates investment advisers that
does not meet the assets under management require-
ment for registration with the SEC and does not
meet the minimum number of clients requirement
for registration with the state may be able to avoid
having to register as an investment adviser altogether.
See Credit Agricole Asset Management Alternative
Investments, Inc., SEC Staff No-Action Letter (Aug.
7, 2006).
20
See supra n.11.

VOL. 22, NO. 4 • APRIL 2015 9
21
See § 203(c)(1) of and Rule 204-1 under the Advisers
Act. Instructions to Form ADV provide that it should
be updated promptly whenever any previously dis-
closed information becomes materially inaccurate.
Changes in the amount of client assets managed or in
the fee schedule do not constitute material changes
that warrant a prompt update. See Form ADV.
22
See Staff of the Investment Adviser Regulation
Securities and Exchange Commission, “Reporting
by Investment Advisers to Private Funds and Certain
Commodity Pool Operators and Commodity
Trading Advisors on Form PF” (Jan. 5, 2012),
available at http://www.sec.gov/rules/final/2012/ia-
3308-secg.htm.
23
See Rule 204(b)-1 under the Advisers Act.
24
See § 207 of the Advisers Act.
25
26
See § 204(a) of the Advisers Act.
27
See Rule 206(4)-7 under the Advisers Act.
28
See Rule 204A-1 under the Advisers Act.
29
See § 204A of the Advisers Act.
30
31
32
33
34
See §§ 206 and 208 of the Advisers Act.
35
36
See § 205 of and Rule 205-3 under the Advisers Act.
37
See Uniao de Bancos de Brasilerios, S.A., SEC Staff
No-Action Letter (July 28, 1992).
38
It is worth noting that foreign advisers may also be
eligible to take advantage of other exemptions, such as
if a foreign adviser provides investment advice only to
insurance companies. See § 203(b) of the Advisers Act.
39
Excluding cash and certain short-term holdings. See
Rule 203(l)-1 under the Advisers Act.
40
See Rule 203(l)-1.
41
See note to Rule 203(l)-1 under the Advisers Act. It
is worth noting that the SEC Staff will not object to
an adviser forming an intermediate holding company
solely for tax, legal, or regulatory purposes to hold
investments on behalf of a venture capital fund, so long
as the intermediate company is wholly-owned by the
venture capital fund. Such intermediate company does
not need to comply with the definition of venture capi-
tal fund. See Staff of the Investment Adviser Regulation
Securities and Exchange Commission, “Guidance on
the Exemption for Advisers to Venture Capital Funds”
(Dec. 2013), available at https://www.sec.gov/divisions/
investment/guidance/im-guidance-2013-13.pdf.
42
See supra n.11.
43
The investment manager may be able to avoid having
to register with the SEC as an investment adviser if
it is eligible for the private fund adviser exemption.
Please see § III (b) of this article.
44
See supra n.6.
45
Id.
46
See § 204(b)(3) of the Advisers Act.
47
See § 204A of the Advisers Act.
48
49
50
See §§203(l) and (m) of and Rule 204-4 under the
Advisers Act.
51
52
See § 202(30) of the Advisers Act. The foreign pri-
vate adviser exemption replaced the private adviser
exemption (i.e., an exemption for any adviser with
fewer than 15 clients) following the enactment of
the Dodd-Frank Wall Street Reform and Consumer
Protection Act. See supra n.6.
53
See § 203(b)(3) of the Advisers Act.
54
See Rule 202(a)(30)-1 under the Advisers Act.
55
See Rule 202(a)(30)-1 under the Advisers Act. For
purposes of the foreign private adviser exemption, a
single client may be:
(i) any natural person, along with that person’s any
minor child, relative, spouse, spousal equivalent,
or relative of the spousal equivalent with the
same principal residence;
(ii) accounts of which that natural person and that
person’s minor children, relatives, spouse, spou-
sal equivalent, or relative of the spousal equiva-
lent with the same principal residence are the
only primary beneficiaries;

Copyright © 2015 CCH Incorporated. All Rights Reserved
Reprinted from The Investment Lawyer, April 2015, Volume 22, Number 4, pages 12–21,
with permission from Wolters Kluwer, New York, NY,
1-800-638-8437, www.wklawbusiness.com
(iii) trusts of which the natural person and that per-
son’s minor children, relatives, spouse, spousal
equivalent, or relative of the spousal equivalent
with the same principal residence are the only
primary beneficiaries; or
(iv) all corporations, general partnerships, limited
partnerships, limited liability companies, trusts,
or other legal organizations that have identical
owners to which the investment adviser pro-
vides investment advice based on its investment
objectives rather than the individual investment
objectives of its shareholders, partners, limited
partners, members or beneficiaries.
56
See Rule 202(a)(30)-1 under the Advisers Act. The
SEC does not consider an investment adviser who
participates in a non-public offering in the United
States of securities issued by a private fund to be
“holding…[itself] out generally to the public in the
United States as an investment adviser.” Furthermore,
while an investment adviser that uses the Internet to
provide information about itself would generally be
considered to be “holding itself out” as an investment
adviser, the SEC considers a non-US adviser, includ-
ing a foreign private adviser, to not be holding itself
out as an adviser if the adviser’s web site includes a
prominent disclaimer clarifying that its contents are
not directed to US persons and the adviser adopts and
implements procedures to guard against providing
information about its advisory services to US persons
(e.g., obtaining residency information such as mail-
ing addresses or telephone numbers prior to sending
further information). See Statement of the Commission
Regarding Use of Internet Web Sites to Offer Securities,
Solicit Securities Transactions or Advertise Investment
Services Offshore, Inv. Adv. Act Rel. No. 1710 (Mar.
23, 1998).
57
See § 206 under the Advisers Act.
58
59
Under the “conduct” part of the test, conduct that
takes place in the United States, whether completely
or to a significant degree, generally is sufficient to
justify application of the US federal securities laws.
See, e.g., Leasco Data Processing Equip. Corp. v.
Maxwell, 468 F.2d 1326 (2d Cir. 1972). Under
the “effects” part of the test, US federal securities
laws generally apply to conduct outside the United
States if the conduct has or is meant to have sub-
stantial effects within the United States. See, e.g.,
Consolidated Gold Fields, PLC v. Minorco, S.A.,
871 F.2d 252 (2d Cir. 1989).
60
See supra n.6.
61
See Zenkyoren Asset Management of America Inc.,
SEC Staff No-Action Letter (June 30, 2011).
62
See supra n.37.

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