Form ADV proposals signal more work for GPs

The SEC is changing its requirements for ‘umbrella registration’ and asking for more information on performance and separately managed accounts.

The US Securities and Exchange Commission (SEC) proposed new amendments to Form ADV reporting and the Investment Advisers Act on Wednesday, in an effort to provide regulators and investors with more information on registered investment advisers.

One proposed amendment specific to private fund managers aims to ease the burden of filing multiple forms for separate funds. The rule clarifies that GPs have the option to report on multiple funds using a single Form ADV by codifying previous guidance that GPs didn’t always follow.  Although the current form allows such “umbrella registration,” the proposed amendments would make the availability of it more widely known to advisers.

The proposals also target an area that the SEC has been focusing on during private equity examinations – performance reporting. The regulator suggested amendments to the Investment Advisers Act Rule 204-2, requiring GPs to maintain records of the calculation of performance information that is distributed to any person. Currently, advisers only have to maintain performance information when it is distributed to 10 or more people.

Additionally, the proposed amendments would require advisers to maintain originals of all written communications received and copies of written communications sent by the firm related to the performance or rate of return of any or all managed accounts or securities recommendations.

“These recommendations will vastly improve the type and format of the information that funds provide to the commission and to investors,” said SEC chair Mary Jo White in a speech on the proposals. “Investors will have better quality and greater access to information about their fund investments and investment advisers, and the SEC will have more and better information to monitor risks in the asset management industry.”

A large portion of the recommendations focus on further disclosure regarding separately managed accounts, requiring advisers to provide aggregate information related to the assets held by the separately managed accounts and the use of borrowing and derivatives within them.

The SEC is also proposing that advisers include additional information about their branch office operations and the use of social media within Form ADV.

If the recommendations are adopted, as is expected, investment advisers will need to engage in “significant data collection and drafting to create their new ADVs,” said compliance consultant Todd Cipperman in an email alert.  “It will be similar to the effort undertaken when the SEC overhauled Form ADV in 2011 and will follow the same process as Form PF,” noted Cipperman.

The full list of amendments can be found here. The SEC will be taking comments on the proposals via email or through its online form for the next 60 days.