SEC Votes to Propose Hedge Fund Adviser Registration

The SEC voted to propose new Rule 203(b)(3)-2 (the "Proposed Rule") under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), which is designed to require advisers to certain unregistered funds to register under the Advisers Act. The Proposed Rule would narrow the current exemption from SEC registration generally available to advisers with fewer than 15 clients (the "Private Adviser Exemption"). Under the Proposed Rule, an adviser would have to look through each "private fund" it advises (and through any registered or unregistered fund-of-funds that holds an interest in that private fund) to count each of the private fund’s ultimate underlying investors as a client for purposes of the Private Adviser Exemption. A "private fund" would be defined as one that: (1) is not registered under the Investment Company Act of 1940, as amended (the "1940 Act"), in reliance on 1940 Act Section 3(c)(1) or 3(c)(7), (2) permits investors to redeem their interests within two years