In response to the financial crisis, Congress adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The Dodd-Frank Act was intended to improve the functioning of the financial markets, enable enhanced monitoring of systemic risk and provide better investor protections. However, much of the Dodd-Frank Act was not self-executing and required various regulatory agencies to adopt rules implementing its provisions. As a result, the majority of regulatory changes over the past several years affecting asset managers related to the continued implementation of the Dodd-Frank Act by regulators. In addition to the changes mandated by the Dodd-Frank Act, regulators have also independently adopted or proposed other regulatory reforms to achieve the goals of the Dodd-Frank Act. The most significant changes affecting asset managers are described in more detail in Section V.

The Dodd-Frank Act is widely regarded as the most sweeping reform of asset management regulation in the US since the 1940s. As a result, since the enactment of the Dodd-Frank Act and the promulgation of related regulations, asset managers subject to US law have devoted significant time and resources to designing new or revised compliance programmes, hiring new compliance personnel, drafting new disclosures to the government and investors, and amending agreements to meet new requirements.

Finally, the Trump administration has ushered in a new era of deregulation, including a repeal of some provisions of the Dodd-Frank Act. The most significant proposals affecting investment advisers are described herein.


The key statute in the US applicable to investment advisers generally is the Investment Advisers Act of 1940 (Advisers Act). An investment adviser is defined under the Advisers Act to include a person or entity who, for compensation, engages in the business of advising others as to the value of securities or as to the advisability of investing in, purchasing or selling securities.2 Absent an exemption, an investment adviser must register as such with the Securities and Exchange Commission (SEC).3

The most common exemptions from registration as an investment adviser are for advisers solely to venture capital funds, family offices, and advisers solely to private funds that have less than US$150 million in assets in the aggregate. Detailed rules have been adopted under each of these exemptions, as well as the exemptions described in the next paragraph, to define applicable terms.4

Non-US advisers have two additional exemptions: the private fund adviser exemption and the foreign private adviser exemption. Under the foreign private adviser exemption, an investment adviser is exempt from registration if it:

  1. has no place of business in the US;
  2. has fewer than 15 US clients and investors in private funds5 advised by the adviser;
  3. has aggregate assets under management attributable to US clients and investors in private funds advised by the adviser of less than US$25 million;
  4. does not hold itself out generally to the public in the US as an investment adviser; and
  5. does not act as an adviser to a US registered investment company or a business development company.

Under the private fund adviser exemption, an investment adviser with its principal office and place of business outside of the US is exempt from registration if it has no client that is a US person except for one or more private funds, and all assets under management by the adviser at a place of business in the US are solely attributable to private fund assets, the total value of which is less than US$150 million. To rely on the exemption, the adviser must make certain publicly available periodic informational filings with the SEC.

Finally, advisers that have registered with the SEC are exempted from state registration requirements. However, such advisers remain subject to state anti-fraud provisions, as well as reporting requirements under certain circumstances. With certain exceptions, advisers with less than US$100 million in assets under management are not permitted to register with the SEC. As a result, these smaller advisers may be subject to state registration requirements if they have clients in a particular state.

An adviser registering with the SEC must file Form ADV, which consists of three parts.6 Part 1A requests information regarding the adviser and its clients, including assets under management, types of clients, affiliates, disciplinary history and ownership. An adviser to private funds must also provide in Part 1A certain information regarding each private fund that it manages. Part 2A is a brochure containing detailed narrative information regarding the firm's policies, practices, fees, personnel and conflicts of interest. Part 2B is a brochure supplement containing information regarding certain advisory personnel. Parts 1A and 2A are filed with the SEC and are publicly available. Parts 2A and 2B must be delivered to clients upon engagement and periodically thereafter.

Advisers that are registered (or required to register) with the SEC are subject to many substantive requirements of the Advisers Act. The Advisers Act and related SEC rules regulate, inter alia, certain terms of advisory agreements, performance fees, client solicitation arrangements, certain political contributions, trading practices, advertising, record-keeping, proxy voting, personal securities reporting and custody of client assets.7 A registered adviser must have written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act, which must be administered by a chief compliance officer.8 The Advisers Act also imposes broad anti-fraud prohibitions that extend to dealings with clients, prospective clients, and investors and prospective investors in private funds that are advised by the adviser.9 Additionally, the SEC may examine registered investment advisers for compliance with the Advisers Act, and has the power to bring enforcement actions for non-compliance with the Act, and to impose fines, suspensions and other penalties for violations.10

Depending on the type of advisory client and the nature of investments managed by the adviser, other regulatory schemes may apply to the adviser as well. For example, an adviser that uses certain derivative products in client portfolios will need to comply with the Commodity Exchange Act; an adviser that has certain types of retirement plan clients will need to comply with the Employee Retirement Income Security Act of 1974 (ERISA); and an adviser that advises a US-registered investment company will need to comply with the Investment Company Act of 1940 (Investment Company Act). These and other applicable regulatory schemes are discussed in more detail below.


i Separately managed accounts

The most common structure for managing assets in the US is a separately managed account (SMA). In an SMA, the client's assets are held by a custodian (typically hired by the client itself), and the adviser enters into an investment management agreement with the client to manage the assets. In this asset management structure, the client and the adviser will negotiate key terms, such as fees and investment objectives, strategies and restrictions. Unlike the funds described below, no corporate form is used to hold the assets, and no securities are issued.

ii Investment companies

Another common structure used to manage assets in the US is an investment company. Investment companies are generally structured as Massachusetts business trusts, Delaware statutory trusts or Maryland corporations,11 which issue shares to investors in the funds. While investment companies are typically eligible for investment by retail investors, many are intended primarily for institutional investors, or offer separate share classes designed for institutional investors (such as pension funds). Investment companies are generally formed as open-ended funds (which issue redeemable securities and typically engage in a continuous offering of their shares), closed-ended funds (which issue non-redeemable securities, engage in a single offering or periodic offerings and typically list their shares for trading on an exchange) and exchange-traded funds (ETFs) (which offer and redeem shares in creation units (share increments of 25,000 or more) and have shares that trade on an exchange).12

Investment companies must register as such with the SEC under the Investment Company Act. An investment company registers with the same registration statement used to register its shares for public offering under the Securities Act of 1933 (Securities Act). A registered investment company is subject to the substantive provisions of the Investment Company Act, which generally requires, inter alia, a board of directors to govern the investment company (at least 40 per cent of which must be independent of the fund's adviser and underwriter) and a written investment management agreement approved by the independent directors prior to execution and annually thereafter (following an initial two-year term). Additionally, the Investment Company Act prohibits, with certain exceptions, transactions with affiliates and the issuance of senior securities (such as incurring debt or issuing preferred shares – which significantly constrains the ability of registered investment companies to employ various forms of portfolio leverage). In addition, certain matters must be approved by shareholders, including, with limited exceptions, new or amended investment management agreements, election of the board of directors and certain changes to investment restrictions.

If offered to the public, investment company shares must be registered with the SEC under the Securities Act.13 Registering shares under the Securities Act requires preparing and filing with the SEC a registration statement, which contains disclosure about, inter alia, the fund's investment objectives, strategies, investment advisers, board of directors, investment restrictions, fees and expenses. A prospectus or summary prospectus, which forms a part of the registration statement, must be delivered to shareholders before, or concurrently with, the sale of shares of the investment company. Investment companies that engage in continuous offerings must update their registration statement annually (or sooner if certain material changes occur).

Investment companies must make periodic reports to their shareholders and follow the proxy solicitation rules adopted by the SEC under the Securities Exchange Act of 1934 (Exchange Act) when shareholder approvals are sought. The Exchange Act and the rules of relevant stock exchanges also impose additional requirements on investment companies with shares that trade on exchanges, such as certain governance requirements.

Because of the difficulties inherent in complying with the Investment Company Act and other US law, non-US investment companies rarely publicly offer their shares in the US.14

iii Private funds

Another structure commonly used to manage assets in the US is the private fund. Private funds typically rely on either Section 3(c)(1) (available to a fund with fewer than 100 investors) or Section 3(c)(7) (available to funds with investors that meet certain high-wealth thresholds, known as qualified purchasers) of the Investment Company Act to be excluded from the definition of investment company. To qualify under Section 3(c)(1) or 3(c)(7), funds must not make a public offering of their securities.15 Private funds in the US are typically structured (usually under Delaware law) as limited partnerships or limited liability companies. Such funds may also be established in non-US jurisdictions, such as the Cayman Islands or Bermuda, to achieve tax efficiency for non-US or tax-exempt investors. Private funds may be either open-ended (the most common structure for a hedge fund) or closed-ended (the most common structure for real estate, private equity and venture capital funds). Most closed-ended private funds have a limited life (usually about 10 years) and, rather than requiring an upfront investment, require investors to commit capital that can be called from time to time by the fund.


The United States mutual fund industry is the largest in the world, with a total of US$18.7 trillion in assets at the end of 2017.16 The largest source of assets flowing into investment companies is households, which had 24 per cent of their assets managed by investment companies in 2017.17

The private equity market in North America is the largest in the world, raising approximately US$272 billion in aggregate capital in 2017.18 Public pension funds make up the largest percentage of limited partner commitments in private equity funds (79.1 per cent), followed by insurance companies (4.9 per cent).19 Public pensions account for the largest percentage of limited partner commitments in venture capital funds (54 per cent), followed by banking institutions (12 per cent).20

At the end of 2017, North American hedge fund managers managed approximately 74 per cent of global hedge fund assets.21 This percentage is down from 82 per cent at the beginning of the decade.22 North American managers, in over 3,530 firms,23 manage approximately US$2.61 trillion of total hedge fund industry capital.24 The largest investors in hedge funds include public pension funds (22 per cent), private sector pension funds (19 per cent) and sovereign wealth funds (10 per cent).25


As noted above, in response to the financial crisis, Congress and regulators have adopted and proposed a number of reforms affecting the asset management industry. Some of the most important changes are summarised below. Additionally, the SEC has recently announced areas of focus for its compliance examinations of registered investment advisers. Certain recent deregulatory initiatives are also described below.

i Derivatives

The Dodd-Frank Act included substantial new requirements with respect to over-the-counter derivative transactions. The changes were largely designed to mitigate systemic risk by decreasing credit risk between parties to derivatives transactions and by increasing transparency in derivatives markets. Many of the new requirements have become effective, but certain other requirements have not yet been implemented, so the ultimate impact of these provisions remains unclear.

Some of the key requirements are as follows.


Certain interest rate swaps and credit default index swaps are required to be cleared through a central clearing house, and some other types of derivatives transactions may become subject to this requirement in the future.


Central clearinghouses impose initial and variation margin requirements on cleared derivatives transactions, which can change at any time and that are often higher than margin requirements for uncleared derivatives transactions. In addition, under rules adopted by the Commodity Futures Trading Commission (CFTC) and US bank regulators, swap dealers are required to post and exchange variation margin with respect to most types of uncleared derivatives with financial end users (which include, among other entities, funds and pension plans). Swap dealers will be required to post and receive a minimum amount of initial margin for such transactions with financial end users with at least US$8 billion in notional amount of derivatives transactions, but this requirement is not likely to have an impact on most transactions (other than inter-dealer transactions) until 2020. Similar rules are expected to be adopted by the SEC with respect to security-based swaps. It is uncertain what effect these higher margin requirements will have on the liquidity of the derivatives markets.


Certain benchmark interest rate swaps and frequently traded credit default index swaps are required to be executed on a swap execution facility or exchange, rather than on a bilateral basis. Some other types of derivatives transactions may become subject to this requirement in the future. There is an exception from this requirement for block trades, which are trades sufficiently large to exceed thresholds established by the CFTC from time to time. To execute transactions on a swap execution facility, asset managers have to become a member of such swap execution facility and therefore become subject to its rules.


All over-the-counter derivatives transactions are (or will be) required to be reported to a swap data repository. The swap data repository makes the reported data available to various regulators, and makes certain of the reported data (not including the identity of the parties) available to the public. If one of the parties to a derivatives transaction is registered as a swap dealer and the other party is not, under CFTC rules, the swap dealer is the only party with the reporting obligation (regardless of whether the swap dealer is organised in the US).

The SEC has adopted reporting rules for security-based swaps, although compliance with such rules is not yet required. In general, under these rules, if one of the parties to the security-based swap is a security-based swap dealer, the latter will have the reporting obligation, although the other party to the security-based swap may have an obligation to report certain parent and affiliate information.

Documentation and business conduct standards

Swap dealers are required to have swap trading relationship documentation (such as an International Swaps and Derivatives Association (ISDA) master agreement) in place with their derivatives counterparties before a derivatives transaction is executed, and are subject to rules regarding timely confirmation of trades and a requirement to conduct periodic portfolio reconciliation with their counterparties. Swap dealers have also generally been seeking substantial additional representations from their counterparties to comply with (and meet certain safe harbours under) business conduct standards. Many market participants have amended their derivatives documentation to comply with these requirements by adhering to market protocols prepared by ISDA.

ii Cybersecurity

The cybersecurity of investment funds and investment advisers has been an important focus of the SEC staff in recent years in light of cyber attacks on a wide range of financial services firms. In February 2018, the SEC announced interpretive guidance on cybersecurity disclosures. Building upon guidance issued by the SEC's Division of Corporation Finance in 2011, the new guidance addresses the need for adequate disclosures, disclosure controls and procedures, and corporate policies that properly consider and address cybersecurity risk. The guidance notably places an emphasis on board involvement in the oversight of such protections.

Under the new guidance, public companies with SEC filing requirements must disclose material cybersecurity risks with the following details:26

  1. risk factors for cybersecurity or incidents, including those in connection with acquisitions;
  2. management discussion and analysis on the costs and consequences of cybersecurity risks and incidents, including the costs of mitigation efforts, insurance, and potential loss or remediation;
  3. descriptions of cybersecurity incidents and risks that may materially affect a company's products, services, relationships or competitiveness;
  4. material pending or ongoing legal proceedings relating to cybersecurity issues;
  5. financial statement disclosures, including how cybersecurity incidents and the resultant risks may affect financial statements; and
  6. board risk oversight, including how the board of directors engages with management on cybersecurity issues but only to the extent that cybersecurity risks are material to an entity's business.

The 2018 guidance encourages the adoption of 'comprehensive policies and procedures related to cybersecurity', and to assess their compliance environment regularly. This assessment should include the sufficiency of the entity's disclosure controls and procedures relating to cybersecurity risks and incidents. In particular, the new guidance highlights the importance of ensuring that cybersecurity incident response teams are well coordinated with disclosure, compliance and other non-IT professionals within a company. The guidance further states that management should assess whether a company's disclosure controls and procedures are adequate to ensure that relevant information about cybersecurity risks and incidents is processed and reported to the appropriate personnel to determine whether disclosure is required. With respect to corporate policies, the 2018 guidance encourages the inclusion of cybersecurity risk and incident considerations within insider trading and any potential fair disclosure policies.

Registered investment advisers are required under Rule 30(a) of Regulation S-P (Privacy of Consumer Financial Information) to adopt policies and procedures reasonably designed to ensure the security and confidentiality of customer records and information; protect against any anticipated threats or hazards to the security or integrity of customer records and information; and protect against unauthorised access to, or use of customer records or information, that could result in substantial harm or inconvenience to any customer.

In April 2014, the SEC's Office of Compliance Inspections and Examinations (OCIE) announced a cybersecurity examination initiative to test investment advisers' implementation of cybersecurity procedures and controls, with a focus on such matters as governance and risk assessment, access rights and controls, data loss prevention, vendor management, training and incident response.

In its 2017 examination priorities, OCIE again highlighted the need for investment advisers to review their operations and compliance programmes, and assess whether advisers have measures in place that are designed to mitigate their exposure to cybersecurity risk. Following the widely publicised WannaCry cyberattack that affected organisations in over 100 countries, the SEC published a risk alert underscoring the importance of conducting cyber-risk assessments, penetration tests and regular system maintenance.

The importance of complying with cybersecurity protocols was emphasised by the September 2017 disclosure that the SEC itself had experienced a cybersecurity breach, which, according to SEC Chair Jay Clayton, may have provided the basis for illicit gain through unauthorised access to non-public information. Shortly following the attack, the SEC published a statement on cybersecurity underscoring the importance of identifying and managing cybersecurity risks, and appropriately informing investors and other market participants of the risks.

In its 2018 examination priorities, OCIE again highlighted that the impact of a successful cyber attack may have far-reaching consequences that affect not only the compromised firm, but also other market participants and retail investors. Owing to this heightened concern, it has become increasingly important for advisers to adopt more advanced and up-to-date cybersecurity protections, and investments advisers and boards of investment companies are devoting increasing attention to this topic.

iii Money-market fund reform27

In response to well-publicised 'races to the exit' that occurred in 2008 as money-market fund investors sought to avoid sharing in losses such funds sustained in Lehman Brothers securities, the SEC adopted rules designed to reduce possible systematic risks that regulators believe money-market funds may present. Previously, money-market funds generally valued their portfolio holdings using the amortised cost method, which resulted in a stable net asset value of US$1 per share (for purposes of shareholder purchases and redemptions) even in circumstances where the underlying portfolio holdings might have been worth fractionally more or less than US$1.

Under the new rules, certain money-market funds are prohibited from using amortised cost to value their investments and consequently will have a floating net asset value per share. The new rules provide for certain liquidity fees on redemptions and give the fund's board of directors authority to suspend redemptions in certain circumstances. More stringent requirements relating to diversification, disclosure, stress-testing and reporting have also been imposed.

iv Investment company portfolio disclosure and liquidity risk management regulations

In October 2016, during the closing months of the Obama administration, the SEC adopted three new rules relating to investment companies, as part of then-SEC Chair Mary Jo White's extensive rule-making agenda focused on the systemic importance of the asset management industry to the securities markets and the financial system as a whole. One of these rules (referred to as 'investment company reporting modernisation') will require registered investment companies to make more frequent and extensive filings with the SEC regarding their portfolio holdings and characteristics, and some of this information will be made publicly available on a delayed basis. The second rule (referred to as the 'Liquidity Management Rule') will require open-ended investment companies (other than money-market funds) to adopt comprehensive portfolio liquidity risk management programmes.28 The third new rule will permit (but not require) open-ended funds to engage in 'swing pricing', under which they could in certain circumstances adjust the prices at which investors purchase and redeem fund shares, so as to pass on to the transacting investors the costs associated with those transactions, which would otherwise be borne by the fund itself.

v The Jumpstart Our Business Startups Act

In 2012, Congress adopted the Jumpstart Our Business Startups Act (JOBS Act), which required, inter alia, that the SEC amend Regulation D (an exemption from registration under the Securities Act) to remove the prohibition on general solicitation or general advertising of certain offerings of securities to accredited investors (those who satisfy certain financial thresholds). In 2013, the SEC amended Regulation D, and private funds may now use general solicitation or general advertising to offer and sell fund interests so long as such fund takes reasonable steps to verify that the purchasers are in fact accredited investors. However, a study commissioned by the SEC found that only 2 per cent of all capital raised under Regulation D relied upon the new general solicitation exemption.29 This may be because of the fact that there is still regulatory uncertainty over advertising, vetting investors and whether general solicitations in the US might affect a fund's ability to rely on private placement exemptions in non-US jurisdictions. In 2014, the CFTC issued exemptive relief from certain provisions in CFTC regulations, including Rule 4.13(a)(3) (see below), to permit commodity pool operators relying on these regulations to engage in general solicitation or general advertising in certain offerings under Regulation D.

vi Department of Labor Fiduciary Rule

In April 2016, the Department of Labor (DOL) adopted a final rule regarding investment advice that subjects a wider group of advisers to fiduciary standards under ERISA. The rule assigns fiduciary status based on whether the advising party makes a 'recommendation' regarding an investment or investment management and receives direct or indirect fees as a result of dealing with a plan, plan participant or beneficiary, plan fiduciary, individual retirement account (IRA) or IRA owner. The DOL also finalised the Best Interest Contract Exemption, which permits certain types of compensation that might otherwise create prohibited conflicts if investment advice fiduciaries meet a series of conditions aimed at ensuring that the advice they give will be in the retirement investor's best interests. The rule took effect on 9 June 2017; however, on 15 March 2018, the rule was struck down by a decision of the Fifth Circuit Court of Appeals. The future of this regulatory project is uncertain.

vii Volcker Rule

The Dodd-Frank Act amended the Bank Holding Company Act by adding a new Section 13, commonly known as the Volcker Rule, that curbs certain investment activities by banks and their affiliates. Simple in concept, the Volcker Rule is complex in practice. The Volcker Rule applies to 'banking entities', broadly defined to include banks, parents of banks, and subsidiaries and affiliates of either of them, as well as non-US banks with a US banking presence, along with their subsidiaries and affiliates. Such banking entities are prohibited from engaging in proprietary trading in securities, derivatives or certain other financial instruments, and from investing in, sponsoring or having certain relationships with certain private investment funds (covered funds), including hedge funds, private equity funds and certain commodity pools, subject to a number of exceptions. Banking entities that serve as sponsors, investment managers or investment advisers to covered funds are also prohibited from extending credit to such funds, subject to limited exceptions. As part of a broader package of banking legislation in 2018, modest changes were enacted to the Volcker Rule.30 An effort to repeal the Volcker Rule in its entirety by Republicans in the House of Representatives and the Senate, where Republicans hold majorities, was unsuccessful.

Final regulations to implement the Volcker Rule were adopted in December 2013, although many interpretive questions remain. The Federal Reserve Board from time to time addresses frequently asked questions and posts them on its website.31 In May 2018, financial regulators responsible for Volcker Rule implementation and enforcement issued proposed regulations that would substantially change the regulation, but that do not repeal the Volcker Rule provisions of the Dodd-Frank Act, which would require an act of Congress.32

Fully implemented eight years after its adoption, the future of the Volcker Rule is uncertain. Significant modifications to existing regulations will likely be implemented as a result of the rulemaking process under way. It is not possible to predict with certainty the outcome of these initiatives.

viii SEC examination priorities

In a June 2018 draft of its five-year strategic plan, the SEC highlighted three broad priorities:33

a ensuring that retail investors better understand the different choices they have when seeking investment advice, and the different standards of conduct that govern investment professionals and investment advisers;

b allocating its resources appropriately in light of evolving trends in the capital markets; and

c enhancing the SEC's analytical capabilities and develop its workforce.

In February 2018, OCIE published its 2018 examination priorities, which reflect topics that the SEC staff perceives to present heightened risk, and to which the SEC's national examination programme expects to allocate significant resources throughout 2018. In the 2018 examination priorities, OCIE listed the following priorities that are worthy of note:

  1. OCIE will continue its Retirement-Targeted Industry Reviews and Examinations Initiative, launched in June 2015, which focuses on the services offered by investment advisers and broker-dealers to retirement account investors;
  2. OCIE will continue to examine broker-dealers' and investment advisers' cybersecurity compliance and controls;
  3. OCIE will continue to examine investment advisers and broker-dealers that offer investment advice through automated or digital platforms (including 'robo-advisers' that primarily interact with clients online): areas of focus will include related data protection programmes, conflict of interest disclosures and oversight of algorithms that generate recommendations;
  4. OCIE will continue its focus on wrap-fee programmes offered by investment advisers and broker-dealers;
  5. OCIE will continue its oversight of the Financial Industry Regulatory Authority (FINRA) (the self-regulatory organisation for broker-dealers) to assess the quality of FINRA's examinations of individual broker-dealers;
  6. with the promulgation of new anti-money laundering (AML) rules by the US Treasury Financial Crimes Enforcement network, OCIE will examine whether SEC-regulated 'financial institutions', which include mutual funds but not registered investment advisers, are adapting their programmes to comply with new consumer due diligence obligations, and assess general AML compliance;
  7. OCIE will focus its examination on mutual funds and ETFs that:
    • have a history of poor performance or liquidity issues;
    • have inexperienced management;
    • hold securities that are likely to be difficult to value during periods of market stress; or
    • seek to track custom-built indexes (for the purpose of reviewing potential conflicts between the manager and index provider);
  8. OCIE will also focus on ETFs with little secondary market trading volume and that are at risk of de-listing and liquidation of assets: these investigations will assess whether there was adequate risk disclosure; and
  9. OCIE will continue to address the large percentage of investment advisers who are newly registered or who have not been examined recently by making risk-based assessments to identify those advisers with elevated risk profiles.

The SEC has also released three sets of proposals focused on improving transparency and standards of conduct for investment advisers and broker dealers.34 The first proposal would require firms to provide retail customers with a more detailed disclosure of a firm's services, fees, conflicts of interest and disciplinary history. The second proposal would impose a 'best interest' standard of conduct on broker-dealers. While this stops short of the long-speculated uniform fiduciary standard for broker-dealers and investment advisers, it would require material conflicts of interest to be disclosed and mitigated. Finally, the SEC has provided further clarification of investment advisers' fiduciary duty, and sought comment on enhanced investment adviser regulations that would further align regulations among advisers and broker-dealers.35

ix Certain deregulatory initiatives

The new Trump administration has emphasised a deregulatory agenda, announcing its intention 'to provide swift relief'36 to the markets from a number of previously enacted regulations. In January 2017, only days after taking office, President Trump signed an executive order freezing most new and pending regulations and setting forth the goal that, for every new regulation issued, at least two prior regulations be identified for elimination.37 At the time of the executive order, the SEC had 19 rules required by the Dodd-Frank Act still pending adoption.38 Although the executive order does not legally bind the SEC, new SEC Chair Jay Clayton has announced a number of initiatives intended to ease regulatory burdens on companies. Although the focus of these initiatives is primarily on capital formation issues and issues of market liquidity and structure, rather than the regulation of asset managers directly, they do signal a heightened level of attention to the accumulated costs and burdens of financial regulation.39

x Cryptocurrencies

The regulation of cryptocurrencies, including coins and tokens such as bitcoin and ether, as well as related funding mechanisms such as initial coin offerings (ICOs) and simple agreements for future tokens (SAFTs), continues to evolve and come into sharper relief. However, the market for cryptocurrencies is global and highly dynamic, and regulators must continuously react to significant developments after they happen.

Cryptocurrencies include virtual currencies and digital assets that use complex encryption techniques to verify the transfer of funds and the generation of new units. Cryptocurrencies are not typically tied to specific governments or central banks, but rather are processed through a decentralised network of private computers linked through shared computer programs. Transactions in cryptocurrencies are processed through a distributed ledger known as a blockchain, on which transactions are verified and trust is established throughout the network.

In the US, cryptocurrencies are subject to regulation by several different regulators, including the CFTC and the SEC. The CFTC has determined that virtual currencies such as bitcoin are 'commodities' subject to oversight by the CFTC, and this view has been affirmed in at least one US district court. Although the CFTC will not directly regulate cryptocurrencies, it will exercise oversight of the derivatives markets for cryptocurrencies and endeavour to ensure that commodities spot markets are free from fraud.

The SEC has also been regulating the cryptocurrency markets through a variety of enforcement actions, including actions involving fraudulent and misleading ICOs and token offerings. In addition, the SEC issued the DAO Report regarding the offering of tokens by a digital autonomous organisation in July 2017. In the DAO Report, the SEC examined the terms of the DAO's token offering utilising the traditional Howey test to determine whether the tokens were 'investment contracts' (and therefore 'securities') under the federal securities laws. Howey defines an 'investment contract' as a contract, transaction or scheme whereby (1) a person invests his or her money in (2) a common enterprise and is led to (3) expect profits (4) solely from the efforts of the promoter or others. The DAO Report indicated that DAO's offering of tokens constituted an unregistered offering of securities, and subsequent transfers of tokens would have been required to be transferred through registered securities exchanges.

Since the DAO Report, the SEC has brought a number of actions and made a number of statements that indicate that it continues to see the Howey test as the appropriate measure of whether a cryptocurrency is a security. In late 2017, the SEC weighed in on a specific ICO involving Munchee, Inc. Munchee launched an ICO for a 'utility token' that would allow its users to access a computer application that it was developing. The SEC intervened to halt the ICO, noting that despite being characterised as a utility token, the token was a security and therefore must be offered in compliance with the federal securities laws. In addition, Chairman Clayton has stated on several occasions before and after Munchee that, in his view, most ICOs appear to involve offerings of securities subject to the federal securities laws.

In June 2018 remarks primarily focused on ether, an SEC official expressed the view that neither bitcoin nor ether are securities, and that offers and sales of these cryptocurrencies are not securities transactions.40 The official also indicated that even though the initial issuance of a digital asset may have represented a securities offering, once the asset is no longer controlled by a central authority or used primarily to purchase goods or services on a functioning network, it may not be appropriate to regulate the digital asset as a security. The official reiterated that the SEC will continue to evaluate cryptocurrencies and ICOs using the Howey test, with the determination of whether a coin or token is a security depending on the facts and circumstances of each offering. In addition, the official provided a series of factors to be used to analyse whether a particular cryptocurrency or digital asset offering should be considered an investment contract under the Howey test.

To date, while much of the US regulatory activity relating to cryptocurrencies has come in the form of enforcement actions and settlements, regulators have started to provide guidance to issuers and investors regarding the status of various coins and tokens. Going forward, to get the full regulatory picture it will be important to monitor both enforcement actions and settlements as well as regulators' statements on how they intend to regulate cryptocurrencies.


i Insurance

Insurance companies are regulated primarily by the states, and therefore each state will have different laws regarding the management of insurance company assets. Although there is no comprehensive federal insurance regulatory scheme, many of the federal laws described above affect insurance company investments.

Assets of insurance companies are typically managed in general accounts or separate accounts. When an insurance company issues variable annuity or life insurance policies, the insurance company will segregate in a separate account assets to satisfy its obligations under the policies. Typically, separate accounts are organised as unit investment trusts, which in turn invest in an open-ended investment company that invests directly in securities. Separate accounts may also be organised as open-ended investment companies that invest directly in a portfolio of securities. Separate accounts holding assets from publicly offered variable annuity or variable life insurance products are considered investment companies under the Investment Company Act, and are subject to applicable provisions of the Investment Company Act and the Securities Act and related SEC regulations.

Insurance company general account assets are managed on behalf of the insurance company (rather than for the benefit of a specified group of policyholders). If general account assets are managed by the insurance company itself, the general account is not considered a client of the insurance company for Advisers Act purposes (as the investment advice is not being provided to others).

ii Pensions

The requirements of ERISA apply to the manager of a pooled investment vehicle or SMA if the underlying assets are treated as 'plan assets'. If a benefit plan investor invests in a pooled investment vehicle or SMA, then unless an exception applies, the underlying assets of the fund are deemed to be plan assets for the purposes of ERISA. Benefit plan investors include most US private sector retirement plans (such as pension and 401(k) plans), Taft-Hartley (multi-employer) union pension plans and IRAs. Exceptions exist for funds that issue publicly offered securities, registered investment companies, venture capital operating companies and real estate operating companies (which exempts many private equity, venture capital and real estate funds), and funds in which benefit plan investors hold less than 25 per cent of each class of equity interest.

If the assets of a fund or account are treated as plan assets, then the manager must satisfy ERISA's fiduciary standards. Under these standards, the manager must:

  1. act solely in the interest of an investing plan's participants;
  2. act prudently with respect to decisions affecting the plan;
  3. diversify the plan assets under its management (subject to the investment guidelines issued to it by the plan's trustee); and
  4. act in accordance with the documents and instruments governing the plan.

Additionally, the manager:

  1. cannot receive more than reasonable compensation;
  2. must not engage in, or cause the client to engage in, non-exempt prohibited transactions (i.e., transactions with parties related to an investing plan, including other service providers for the plan, and self-dealing); and
  3. must be bonded under a fidelity bond.

Finally, the manager must assist the investing plans in satisfying their reporting obligations, including disclosing its compensation for the services provided.

If an adviser is a qualified professional asset manager (QPAM) and satisfies certain conditions, certain of the rules regarding prohibited transactions are relaxed.41 For example, if the conditions for using the QPAM exemption are met, the prohibition on transactions with parties related to the plan applies only to those parties that have (or whose affiliates have) the ability to appoint or terminate the manager, parties that (together with their affiliates) account for more than 20 per cent of the manager's total client assets under management and parties in interest that are a person related to the QPAM under complex common ownership rules. To qualify as a QPAM, the adviser, if not a bank or insurance company, must be registered under the Advisers Act, and generally must have more than US$85 million in assets under management and more than US$1 million in shareholder or partner equity.

Certain transactions are limited or prohibited for ERISA clients under the self-dealing rules, even if the adviser is a QPAM. These include certain incentive compensation arrangements, cross trading and use of an affiliated broker-dealer. However, conditional exemptions from these and other prohibitions are relied upon by many advisers.

If a fiduciary breaches its duties under ERISA, the fiduciary will be required to restore any losses to the plans and disgorge any profits resulting from the breach, and may be subject to certain penalties and taxes.

iii Real property

As the Advisers Act definition of investment advisers relates only to advice with respect to securities, advisers dealing in real estate are only required to register under the Advisers Act if they provide advice relating to securities in addition to real estate. However, as such advisers may advise on real estate-related securities (e.g., mezzanine loans, mortgage-backed securities or limited partner interests in partnerships that own real estate), many real estate advisers have registered as investment advisers.

Real estate advisers commonly provide investment advice to clients through SMAs (which may co-invest with the adviser or other clients, or with both, in real estate joint ventures), single asset or programme joint ventures, real estate investment trusts (REITs) and private funds.

Real estate private funds that may invest in securities often rely on Section 3(c)(5)(C) under the Investment Company Act for exclusion from the definition of investment company (available to funds primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate)42 and on Regulation D under the Securities Act.

REITs allow investors to make passive investments in real estate on a tax-advantaged basis. Qualification as a REIT is complex, and requires ongoing compliance with organisational, asset and income tests under the Internal Revenue Code, which are summarised in Section VII. REITs may be privately or publicly offered. Privately offered REITs are typically offered pursuant to Regulation D under the Securities Act. Publicly offered REITs are subject to the Securities Act and Exchange Act, including the reporting requirements for public companies. REITs that may invest in securities typically rely on Section 3(c)(5)(C) for an Investment Company Act exemption.43

iv Hedge funds

A number of the key trends discussed above (e.g., derivatives regulation, cybersecurity risks, Commodity Exchange Act registration and the JOBS Act) directly affect hedge funds and their advisers. As previously noted, the Volcker Rule requires banking entities to limit substantially certain relationships they may have had with hedge funds. As previously noted, the Volcker Rule prohibits banking entities from investment in, and sponsorship of, private investment funds, including hedge funds, subject to limited exceptions. It also places credit and other restrictions on relationships between banking entities and private investment funds for which they are a sponsor, investment manager or investment adviser.

Additionally, the SEC requires registered hedge fund advisers to file Form PF, containing detailed information about each hedge fund managed by the adviser. The form is filed with the SEC on a confidential basis (either annually or quarterly, depending on the adviser's hedge fund assets under management), and includes extensive information regarding a fund's strategy, investors, derivatives, leverage, investments, counterparties, turnover, exposures, risk metrics, financing and investor liquidity.

v Private equity

As with hedge funds, cybersecurity risks, the JOBS Act and the Volcker Rule will affect the operations of private equity funds and their advisers. Applying the Advisers Act, which is primarily designed for advisers managing publicly traded securities for retail investors, to private equity firms has proven to be complicated. As a result, private equity firms have been put in the position of internally resolving numerous interpretive issues without clear guidance from regulators.

In their examinations of, and public statements regarding, private equity firms, the SEC staff has focused on the valuation of private equity investments, allocation of fees and expenses between the adviser and the funds and the adviser and portfolio companies, and the allocation of co-investment opportunities. Additionally, the SEC staff has raised questions as to whether broker–dealer registration should be required in respect of certain common practices of private equity firms, including the marketing of private equity fund interests and the receipt by private equity firms of transaction-based compensation in connection with capital markets or merger and acquisition activity relating to portfolio companies.

Advisers to private equity funds must also file Form PF annually. Depending on the amount of the private equity firm's private equity fund assets under management, these filings must include certain information regarding each fund's leverage, derivatives holdings, investors and portfolio companies.

As noted above, the Financial Choice Act, which has passed one house of Congress, would exempt managers of 'private equity funds' from registering under the Advisers Act. However, the breadth of the exemption and the definition of 'private equity fund' under this Financial Choice Act remain unclear, as do prospects that the proposed Act will ever become law.

vi Registration under the Commodity Exchange Act

Under the Commodity Exchange Act, the operator of a commodity pool (i.e., a fund that has the authority to invest in commodity interests) must register as a commodity pool operator (CPO),44 and an adviser providing advice with respect to commodity interests must register as a commodity trading adviser (CTA) (in each case, absent an exemption from registration). Before the Dodd-Frank Act, commodity interests subject to the Commodity Exchange Act included futures, options on futures, options on commodities, and certain foreign exchange and metals contracts. The Dodd-Frank Act amended the definition of commodity interests to encompass a much broader range of derivatives contracts, including interest rate derivatives, derivatives on a broad-based securities or credit index, other commodity derivatives and currency derivatives (other than deliverable currency forwards and certain other currency instruments).

In addition, although not mandated by the Dodd-Frank Act, the CFTC in 2012 amended its rules to eliminate a significant exemption from CPO registration (which permitted a fund to use commodity interests without limit so long as certain investor minimum investment portfolio size and other requirements were met).45 As a result, the only remaining potential CPO registration exemption for most CPOs who operate funds with US investors (or that are offered to US investors) is under Rule 4.13(a)(3), which provides an exemption only if all investors meet certain minimum income or net worth standards, the fund complies with certain marketing limitations, there is no public offering of fund interests,46 and either no more than 5 per cent (in the aggregate) of the fund's net asset value is used as initial margin, premiums or other upfront payments required to establish a commodity interest position; or the aggregate net notional value of the fund's commodity interest positions does not exceed 100 per cent of the fund's net asset value.

The CFTC takes the position that the operator of a fund (including a fund organised and operated outside the US) with one or more US investors (or that is marketed to US investors) is subject to CPO registration (or must qualify for and claim an exemption).

A registered CPO or CTA is subject to various reporting, disclosure and record-keeping requirements (which may vary depending on the nature of the client or investors in the fund). Additionally, a registered CPO or CTA must become a member of the National Futures Association (NFA), a self-regulatory organisation, and is subject to periodic examination by the NFA.

vii Municipal advisers

On 20 September 2013, the SEC adopted rules47 to establish a permanent registration regime for municipal advisers. These rules implement provisions of the Dodd-Frank Act, which generally prohibit municipal advisers from soliciting or providing certain advice to municipal entities without first registering with the SEC. Municipal advisers include persons who provide advice to or on behalf of a municipal entity with respect to municipal financial products or the issuance of municipal securities, or undertake a solicitation of a municipal entity. 'Municipal entities' are US states, their political subdivisions and certain related entities. In general, SEC-registered investment advisers are excluded from the definition of municipal adviser to the extent that a registered investment adviser 'is providing investment advice in such capacity'. Unregistered investment advisers may be considered municipal advisers if a municipal entity has invested the proceeds of an issuance of municipal securities in a fund or SMA managed by such adviser. Unregistered investment advisers to SMAs for municipal entities may also be considered municipal advisers if the account holds any swaps or securities-based swaps. Unregistered investment advisers have a due diligence requirement to determine whether a fund or account holds the proceeds of a municipal securities issuance. In October 2014, the SEC approved the first dedicated rule of the Municipal Securities Rulemaking Board (MSRB), MSRB Rule G-44, for municipal advisers regarding supervisory and compliance obligations along with related amendments to already existing rules on books and records to be maintained by brokers, dealers and municipal securities dealers.48 MSRB Rule G-44 primarily employs a principles-based approach to supervision and compliance, and is modelled after existing broker-dealer and investment adviser standards. Since then, the MSRB has adopted or amended restrictions on pay-to-play activities, standards of conduct, limitations on gifts, supervision requirements and professional qualification requirements.


i Separately managed accounts

For US clients, net investment income generated by investments is generally taxed as ordinary income, although qualifying dividends are taxed to individuals at lower capital gains rates. Taxes on capital gains from the sale of securities will be determined by how long the client owned the investments that generated them. To the extent that US clients are taxed by non-US jurisdictions due to investments in non-US issuers (such as a foreign withholding tax), US tax credits may be available to such clients.

Non-US clients will be subject to withholding at a rate of 30 per cent on dividends from US sources, although the withholding may be reduced depending on the status of the investor (e.g., foreign governments are generally exempt), or the tax treaty between the US and the country of the non-US client. Interest income from US sources is generally exempt from US withholding for non-US non-bank investors that meet certain requirements (such as submitting a Form W-8BEN). Non-US clients that are not otherwise engaged in a US trade or business will typically not need to file a US tax return as a result of investments in the US, except in limited circumstances, such as investments in United States real property interests (i.e., direct interests in US real property, as well as the stock of any corporation that holds sufficient interests in US real property to be considered a United States real property holding company), or investments in pass-through entities with US trade or business activities.

ii Registered investment companies

An investment company that qualifies as a regulated investment company under Subchapter M of the Internal Revenue Code generally will not be subject to US federal income tax on its income and capital gains that it timely distributes to shareholders. To qualify as such, the investment company generally must, inter alia:

  1. be treated as a domestic corporation for US tax purposes;
  2. derive at least 90 per cent of its gross income for each taxable year from certain specified sources or other sources with respect to its business of investing in stock, securities or currencies;
  3. meet certain asset diversification tests; and
  4. distribute with respect to each taxable year at least 90 per cent of the sum of its 'investment company taxable income' (which includes short-term, but not long-term, capital gains), and any net tax-exempt interest income, for such year.

If an investment company were to fail to meet the income, diversification or distribution tests described above, and were ineligible to or did not cure such failures in the manner presented in the Internal Revenue Code, the investment company would be subject to tax on its taxable income and gains at corporate rates, and all distributions from earnings and profits would be taxable to shareholders as ordinary income.

Dividends received from an investment company, as well as any gains from the sale of company shares, are generally subject to tax in the hands of shareholders subject to US federal income tax.49

Distributions to non-US shareholders of long-term capital gain, short-term capital gain and US-source interest income ('exempt distributions') generally are exempt from US federal income tax withholding, provided that companies report a distribution as such to shareholders. An investment company is not required to, and therefore might not, report distributions as eligible for any such exemption, even if it is available. Under current law, a non-US shareholder generally is subject to 30 per cent US federal income tax withholding (or a lower applicable tax treaty rate) on dividends it receives from an investment company that qualifies as a regulated investment company that are not exempt distributions, even if the income or gain underlying such dividends would not be subject to such withholding if had been paid directly to the non-US shareholder by the underlying issuer.

iii REITs

Requirements for a REIT to qualify for pass-through taxation include that a REIT must invest at least 75 per cent of its assets in real estate or qualifying assets, distribute at least 90 per cent of its annual taxable income to shareholders as dividends; and have at least 100 shareholders and not be closely held.

iv Private funds

Private funds in the US typically elect to be treated as a partnership for US federal income tax purposes if they are not so treated by default.50 If the fund were not treated as a partnership, but as an association taxable as a corporation, fund income or gains would be taxed, and losses trapped, at the fund level rather than being passed through to the partners of the fund; distributions to investors in the fund would be treated as dividends; and additional adverse tax, reporting and filing consequences could be triggered.

As a partnership for tax purposes, the fund itself generally will not pay US federal income tax. Income, gains, losses, deductions and credits of the fund will be allocated to the investors for US federal income tax purposes in accordance with the applicable governing documents, the Internal Revenue Code and the regulations thereunder.

In general, the US federal tax treatment of a non-US investor in a private fund treated as a partnership will depend on whether the fund is deemed to be engaged in a US trade or business. US-sourced income not effectively connected with a US trade or business may be subject to US withholding tax. If the fund were determined to be engaged in a US trade or business, either as a result of the fund's own activities or because the fund invests in turn in a pass-through entity (such as a partnership) so engaged, the investor's distributive share of the fund's income that is effectively connected with such trade or business would be subject to US federal income taxation (potentially including branch profits taxes in the case of corporate investors), some or all of which may be satisfied by withholding on each non-US investor's distributive share of such income. Further, each non-US investor would be required to file a US federal income tax return reporting such income (and potentially all its other US-sourced income for the taxable year). In addition, any income from the disposition of a United States real property interest held directly or indirectly through a pass-through entity by the fund would be treated as income effectively connected with a US trade or business. Accordingly, such income would be subject to US taxation and withholding, and each non-US investor would be required to file a US federal income tax return reporting its distributive share of such income. Under a change to the Internal Revenue Code enacted in 2017, withholding will occur on the disposition of an interest in a fund treated as a partnership engaged in a US trade or business, unless the investor certifies that it is a US person.

v Foreign Account Tax Compliance Act

The Foreign Account Tax Compliance Act, as codified in Sections 1471–1474 of the Internal Revenue Code and the US Treasury and Internal Revenue Service guidance issued thereunder (collectively, FATCA), establishes an information reporting regime designed to identify US persons holding assets through offshore entities and overseas accounts. Subject to certain exceptions, non-compliance with FATCA's reporting and diligence requirements generally leads to a 30 per cent withholding tax on certain entities with respect to certain US-sourced income (including, among other types of income, dividends and interest) and gross proceeds from the sale or other disposition of property that can produce US-sourced interest or dividends (together, a withholdable payment). In addition, withholding under FATCA potentially may apply in the future on certain payments of non-US sourced income (pass-through payments). The FATCA withholding tax is currently in effect with respect to withholdable payments, except for payments with respect to gross proceeds. Withholding on payments with respect to gross proceeds is set to begin on 1 January 2019.

Since the enactment of FATCA, the US Treasury has signed various intergovernmental agreements (IGAs) with foreign jurisdictions to help implement FATCA's requirements abroad. The objective of the IGAs is to gather the same information regarding US accounts as is required under the FATCA regulations, while resolving local law conflicts and reducing burdens for IGA-country financial institutions. Additionally, FATCA's implementation has spurred on the development of other tax information reporting regimes, such as a regime similar to FATCA in the United Kingdom, and the Common Reporting Standard, an initiative developed by the Organisation for Economic Co-operation and Development aimed at global tax transparency.


The effects of the changes in regulation described above are not yet completely known. As a result, there are still many questions that may be answered in time, including how the derivatives markets will adjust to new regulation and whether the new regulations will, in fact, improve the functioning of the markets, better protect investors and help prevent another financial meltdown, or whether they will only increase transaction and compliance costs and create barriers to entry into the asset management business. In addition, under the Trump administration, there are significant efforts to roll back regulation, including under Dodd-Frank, and it remains to be seen what the full outcome of these efforts will be.


1 Jason E Brown, Leigh R Fraser and John M Loder are partners at Ropes & Gray LLP. The authors wish to thank Richard E Gordet, William D Jewett, Susan A Johnston, Mark V Nuccio, Deborah A Monson, Heather Sussman, Edward Baer, Matthew Coleman, Kathryn Seevers, and Connor Kortje, all of Ropes & Gray LLP, for their assistance in the preparation of this chapter.

2 Certain parties providing investment advice, such as banks, lawyers and broker-dealers, are exempt under certain circumstances from the definition. Although there are other activities that constitute acting as an investment adviser (e.g., publishing reports on securities), this chapter will focus on advisers providing investment advice directly by managing securities portfolios for clients.

3 The SEC is the regulatory agency that implements and enforces the various US federal securities laws.

4 See Advisers Act Rules 202(a)(11)(G)-1, 202(a)(30)-1, 203(l)-1 and 203(m)-1.

5 As described in more detail in Section III, a private fund is a fund relying on Section 3(c)(1) or 3(c)(7) of the Investment Company Act of 1940 (i.e., funds sold in a private offering to a limited number of investors or exclusively to certain types of sophisticated investors).

6 A fourth part (Part 1B) must be completed by state registrants only.

7 See Advisers Act Section 205, Rule 205-3, Rule 206(4)-3, Rule 206(4)-5, Section 206, Rule 206(4)-1, Rule 204-2, Rule 206(4)-6, Rule 204A-1 and Rule 206(4)-2, respectively, and related SEC guidance.

8 See Advisers Act Rule 206(4)-7.

9 See Advisers Act Section 206 and Rule 206(4)-8.

10 See Advisers Act Section 203.

11 These states have regimes that are advantageous for investment companies (e.g., exempting an investment company from the requirement to hold an annual shareholders' meeting).

12 There are other forms of pooled investment vehicles subject to certain specialised provisions of the Investment Company Act, such as unit investment trusts, face amount certificate companies and business development companies.

13 A small percentage of registered investment companies offer their shares only in a private offering, and therefore do not register their shares under the Securities Act.

14 For example, non-US investment companies must apply to the SEC for special permission to register as an investment company or publicly offer their shares.

15 If there is no public offering under the Securities Act, the proxy rules and certain other provisions of the Exchange Act do not apply to the private fund (provided that the number of investors remains below certain numerical thresholds). State securities law might still apply, although for most private offerings, only state notice filings (at most) are required.

16 Investment Company Institute, 2018 Investment Company Fact Book, p.58. (58th ed. 2018).

17 Id. at p.36. .

18 Preqin Investor Network, 2018 Preqin Global Private Equity & Venture Capital Report, p. 37 (2018).

19 PitchBook Data, Inc. While these numbers are global data, based on our experience, we would expect a similar breakdown for investors in US private equity funds.

20 Id. While these numbers are global data, based on our experience, we would expect a similar breakdown for investors in US venture capital funds.

21 Preqin, 2018 Preqin Global Hedge Fund Report, p. 21 (2018).

22 TheCityUK, Hedge Funds 3 (2013).

23 Preqin, 2018 Preqin Global Hedge Fund Report, p. 20 (2018).

24 Id.

25 Id at p. 64. While these numbers are based on global data, based on our experience, we would expect a similar breakdown for investors in US hedge funds.

26 The new guidance is applicable to asset management firms that are public companies, but does not apply to registered investment companies or to investment advisers that are not public companies.

27 US-registered money-market funds held approximately US$2.8 trillion in assets at year end 2017. See Investment Company Institute, 2018 Investment Company Fact Book, p.243. (58th ed. 2018).

28 In June 2018, the SEC took action to relax certain requirements under the Liquidity Management Rule.

30 The Economic Growth, Regulatory Relief, and Consumer Protection Act, Pub L 115-174, S2155.

36 See US Treasury Secretary Mnuchin's press release at www.treasury.gov/press-center/press-releases/Pages/sm0106.aspx.

37 See Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs (20 January

39 See, e.g., Chair Clayton's 12 July 2017 Remarks at the Economic Club of New York, www.sec.gov/news/speech/remarks-economic-club-new-york.

40 Remarks of William Hinman, Director of the SEC Division of Corporate Finance, 14 June 2018, https://www.sec.gov/news/speech/speech-hinman-061418.

41 This exemption is relied upon by most large managers of plan assets.

42 Institutional real estate private funds that invest in real estate-related securities typically also qualify under Section 3(c)(7) of the Investment Company Act for exclusion from the definition of investment company.

43 Private REITs that invest in real estate-related securities may also choose to qualify under Section 3(c)(7) of the Investment Company Act for exclusion from the definition of investment company.

44 The CPO is typically the general partner or directors of a private fund or the adviser of a registered investment company.

45 There are various CTA registration exemptions as well, although these have not been changed materially recently (with the exception of various CTA exemption tests amended to reflect the broader definition of commodity interests).

46 As discussed above, the CFTC has issued exemptive relief to CPOs from the public offering restriction with respect to certain offerings made under Regulation D.

47 See Exchange Act Rules 15Ba1-1–15Ba1-8.

48 See MSRB Rules G-8 and G-9.

49 Very generally, distributions of investment income and net short-term capital gains are taxed at ordinary income rates. Distributions of net long-term capital gains and, so long as the fund and the US shareholder meet certain requirements, dividends constituting 'qualified dividend income', are taxed at the lower rates applicable to long-term capital gains.

50 In some cases, tax-exempt investors invest through a corporation to prevent certain disadvantageous tax attributes from applying to investments.