Mon, Jun 1, 2015

SEC's proposed rules to enhance information reported by investment companies and investment advisers

On May 20, 2015, the Securities and Exchange Commission (“SEC”) proposed rules, forms, and amendments to modernize and enhance the frequency and detail of the information reported by investment companies and investment advisers, including hedge fund and private equity fund managers.

The proposal aims to increase both the quality and accessibility of information disclosed to the SEC for regulatory monitoring, as well as disclosure to investors. It is widely believed that this proposal represents the first in a series of ground breaking initiatives aimed at boosting the SEC’s oversight of the industry, and additional proposals are expected as early as by the end of this year. A 60-day comment period follows from publication in the Federal Register.


Investment Adviser Proposals

The proposals outline additional information to be included on the Form ADV for investment adviser registration, as well as to subsequent filings, which the SEC believes will prove valuable in enhancing the risk profiles of the registered advisers and the industry as a whole.

Most notably, the proposal focuses on implementing additional disclosure requirements with respect to separately managed accounts (SMAs).


Registration and Reporting – Form ADV for Registered Investment Advisors

Of the proposed changes to the Form ADV, the most notable include the following:

  • For SMAs, the requirement to disclose the types of assets held and the use of derivatives and borrowings
  • Modification of the Form to specifically allow for certain “umbrella registration” filings, allowing a group of related entities to file as a single advisory business
  • Additional disclosure regarding an adviser’s business, including information on branch office operations and the use of social media, if applicable


Investment Advisers Act Rules

Under the Investment Advisers Act of 1940 Rule 204-2, advisers must currently maintain records of performance information calculations that are distributed to 10 or more persons. The proposed changes would remove this 10-person threshold and require advisers to maintain all performance information (including calculations) distributed to any person.

Financial Services Compliance and Regulation

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