On March 2, 2020, the Securities and Exchange Commission (“SEC”) adopted the amendments to (i) Section 203(l)-1, which defines the term “venture capital fund” for purposes of the venture capital fund adviser exemption, and (ii) Section 203(m)-1, which defines the term “assets under management” for purposes of the private fund adviser exemption, in each case, under the Investment Advisers Act of 1940 (as amended, the “Advisers Act”), to reflect exemptions from registration for investment advisers who advise rural business investment companies (“RBICs”).
Specifically, Section 203(l), which exempts from investment adviser registration any adviser who solely advises venture capital funds, was amended by stating that RBICs are venture capital funds for purposes of the exemption. Section 203(m), which exempts from investment adviser registration any adviser who solely advises private funds and has assets under management in the United States of less than $150 million, was amended by excluding RBIC assets from counting towards the $150 million threshold.
Therefore, an investment adviser who relies on the RBIC adviser exemption is not subject to reporting or recordkeeping provisions under the Advisers Act and is not subject to examination by SEC staff. The amendments may bring the following flexibility to investment advisers:
Registered investment advisers solely to RBICs can rely on the RBIC adviser exemption in Advisers Act section 203(b)(8) to withdraw from registration and have no obligation to report information to the Commission on Form ADV.
Exempt reporting advisers advising RBICs that qualified for the private fund adviser exemption may increase their total private fund assets under management in the United States above the $150 million threshold without triggering a requirement to register with the Commission as an investment adviser, provided that their non-RBIC private fund assets and non-SBIC private fund assets under management in the United States remain below the $150 million threshold.
Advisers that did not advise RBICs and qualified for the private fund adviser exemption may begin advising RBICs without changing their registration status regardless of the amount of assets attributable to RBICs.
Advisers that did not advise RBICs and qualified for the venture capital fund adviser exemption may begin advising RBICs without changing their registration status.
Licensed by the U.S. Department of Agriculture, RBICs are investment funds that make equity investments mostly in smaller enterprises located primarily in rural areas to promote economic development and the creation of wealth and job opportunities in rural areas and among individuals living in those communities.
The amendments will become effective upon publication in the Federal Register.