USA Law and Practice Contributed by: Bill Sturman, Matthew Holt, Steven Starr and Cliff Cone, Clifford Chance
the Investment Company Act. These exclusions include alternative funds that limit their investors to no more than 100 persons or that limit their investors to “qualified purchasers”, as described in 2.2.3 Restrictions on Investors . Commodity Exchange Act Certain alternative funds that trade swaps, commodities, futures, or derivatives and their investment advisers may be regulated by the Commodity Futures Trading Commission under the Commodity Exchange Act (CEA). In par - ticular, certain alternative fund general partners or managing members may need to register or seek exemption from registration as a commod - ity pool operator and their investment advisers may need to register or seek exemption from registration as a commodity trading adviser. 2.3.2 Requirements for Non-Local Service Providers Generally, non-local service providers are gener - ally not subject to US registration requirements in the alternative fund context. As noted in the preceding section, placement agents are regu - lated under the Exchange Act and generally need to be registered with the SEC, the Finan - cial Industry Regulatory Authority Inc. (FINRA) and the states in which they operate. Foreign placement agents may enter into chaperoning arrangements with US broker-dealers to allow them to access the US markets without being registered themselves, subject to significant restrictions. 2.3.3 Local Regulatory Requirements for Non- Local Managers The conduct of an investment advisory busi - ness in the United States is subject to regula - tion under the Advisers Act. The Advisers Act defines an “investment adviser” as any person who engages in the business of providing advice
to others or issuing reports or analyses regard - ing securities for compensation. Alternative fund managers would generally be considered invest - ment advisers for the purposes of the Advisers Act. Registration of Investment Advisers Any entity meeting the definition of an investment adviser that uses US jurisdictional means in con - nection with an advisory business must register with the SEC as an investment adviser under the Advisers Act or find an available exemption from registration thereunder. Registration as an investment adviser imposes legal, record- keeping, and disclosure burdens on advisers that must be considered during the registration process. For example, SEC-registered advisers must adopt written policies and procedures and codes of ethics to govern their activities, comply with detailed disclosure and advertising restric - tions, develop internal controls and procedures subject to internal audit, and meet other Advis - ers Act requirements. Additionally, all SEC-reg - istered advisers are subject to SEC examination, investigation, and enforcement liability. Exemptions A non-local manager may avoid registration if it qualifies for one of the following exemptions: • The foreign private adviser exemption is available to an investment adviser that: (i) has no place of business in the United States; (ii) has, in total, fewer than 15 clients or inves - tors in the US; (iii) has aggregate assets under management attributable to these US clients or investors of less than USD25 million; and (iv) does not hold itself out generally to the public in the United States as an investment adviser. • The private fund adviser exemption is availa - ble to any investment adviser whose principal
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