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Dodd-Frank Act Changes Affecting Private Fund Managers and Other Investment Advisers

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), 1 which was signed into law on July 21, 2010, fundamentally changes a number of areas affecting private funds, including the regulation of swaps, a new restriction on the ability of banking entities to sponsor or invest in private funds (the “Volcker Rule”), and new reporting requirements for fund managers. This article discusses those changes, as well as more minor changes affecting the accredited investor defi nition, the qualifi ed client defi nition and Rule 506 disqualifi cations | Special Issue Welcome to My Regulated World Dodd-Frank Act Changes Affecting Private Fund Managers and Other Investment Advisers By Adam Gale and Garrett Lynam I. Introduction The Dodd-Frank Wall Street Reform and Consumer Protection Act Dodd-Frank 1 which was signed into law on July 21 2010 fundamentally changes a number of areas affecting private funds including the regulation of swaps a new restriction on the ability of banking entities to sponsor or invest in private funds the Volcker Rule and new reporting requirements for fund managers. This article discusses those changes as well as more minor changes affecting the accredited investor definition the qualified client definition and Rule 506 disqualifications. One of the most fundamental Dodd-Frank changes affecting private funds is the elimination of the private advisers exemption from registration with the SEC as an investment adviser also known as the 15-client exemption . In its place Dodd-Frank created several new but less comprehensive exemptions with the result that most U.S. fund managers with 150 million or more in assets under management will need to register with the SEC and most fund managers that also have non-fund clients such as separately managed accounts will need to register with the SEC or a state. Those changes are discussed in a separate article in this issue of Inside and accordingly are not addressed here.2 II. Regulation of Swaps Dodd-Frank provides for the comprehensive regulation of swaps and requires swap dealers and major swap participants to register with regulators.3 As many private funds engage in various types of swaps and derivatives transactions private fund managers will need to determine if their funds are captured by these new categories which would then require registration and compliance with numerous new compliance requirements. Since many of the rules and definitions have only been proposed and not finalized however it is not possible to make any final determinations at