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«January 24, 2011 Via Electronic Filing Elizabeth M. Murphy Secretary Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549-1090 ...»

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January 24, 2011

Via Electronic Filing

Elizabeth M. Murphy

Secretary

Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549-1090

Re: Rules Implementing Amendments to the Investment Advisers

Act of 1940; Proposed Rules, Rel. No. IA-3110; File No. S7-36Dear Ms. Murphy:

The Investment Adviser Association (IAA)1 appreciates the opportunity to

comment on the SEC’s proposed new rules and rule amendments under the Investment

Advisers Act of 1940 (the Advisers Act) to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) (collectively, the Proposal). 2 Among other things, the Proposal increases the statutory threshold for investment adviser registration with the SEC, requires certain advisers to private funds to register with the SEC, and requires reporting by other advisers that are exempt from SEC registration. The Proposal also includes rule amendments that address a number of other changes to the Advisers Act made by the Dodd-Frank Act.

This comment letter3 addresses the proposed amendments to Form ADV, Part 1, including regulatory assets under management (AUM), as well as private fund The IAA is a not-for-profit association that exclusively represents the interests of investment adviser firms registered with the SEC. Founded in 1937, the Association’s membership consists of more than 500 firms that collectively manage in excess of $10 trillion in assets for a wide variety of individual and institutional clients, including pension plans, trusts, investment companies, private funds, endowments, foundations, and corporations. For more information, please visit our web site: www.investmentadviser.org.

Rules Implementing Amendments to the Investment Advisers Act of 1940; Proposed Rules, Rel. No. IAFile No. S7-36-10 (Dec. 10, 2010), available at http://www.sec.gov/rules/proposed/2010/iafr.pdf.

We address the proposed amendments to the pay to play rule in a separate letter.

1050 17th Street, N.W.; Suite 725; Washington, DC 20036-5503 · (202) 293-4222 ph · (202) 293-4223 fx · www.investmentadviser.org Ms. Elizabeth M. Murphy January 24, 2011 Page 2 information, data about an adviser’s business, and additional information about advisers’ non-advisory activities and their financial industry affiliations.

Introduction and Summary The Dodd-Frank Act provides the Commission with increased responsibility for oversight of private funds. The Commission is proposing amendments to Part 1 of Form ADV in order to enable it to better focus its examination and enforcement resources, particularly with respect to the collection of information about private funds, and to enhance its oversight of investment advisers. The IAA fully supports the Commission’s goals.

The Commission has not made substantial revisions to the information collected in Part 1 of Form ADV since 2000, when the Investment Adviser Registration Depository (IARD), the electronic filing system for investment advisers, was established, and IARD filing for Part 1 was implemented.4 We applaud the Commission for taking steps to improve the collection of information from advisers in order to improve its risk assessment process and investment adviser examination program. We are concerned, however, with certain aspects of the proposed revisions and suggest a number of modifications to the Proposal.

Specifically, we encourage the Commission to: (1) not subject private fund information submitted by advisers on Part 1 of Form ADV to public disclosure on the Investment Adviser Public Disclosure web site (IAPD); and (2) streamline the information it collects from advisers. These general recommendations regarding the Proposal are set forth below. In addition, we have set forth our specific item-by-item comments with respect to Part 1 in the attached Appendix.

1. The Commission Should Not Subject Private Fund Information Submitted by Advisers on Part 1 of Form ADV to Public Disclosure on the IAPD Enhanced disclosure in Part 1 of Form ADV will improve the Commission’s ability to gather data about firms and to conduct appropriate inquiries, inspections, and other activities based on that data. We support this increased oversight of private funds and increased information gathering. Certain additional information will allow the Commission to focus its examination and enforcement resources on those advisers to private funds that appear to present greater compliance risks. In addition, increased oversight of private funds will enable the Commission to improve its ability to assess conflicts and potential risks, and to identify funds with service provider arrangements that raise a “red flag.” Electronic Filing by Investment Advisers; Proposed Amendments to Form ADV, Rel. Nos. IA-1862, 34Apr. 5, 2000).

Ms. Elizabeth M. Murphy January 24, 2011 Page 3 We submit, however, that the Commission should limit the public availability of private fund information provided on Part 1 of Form ADV. First, certain of the proposed disclosure regarding private funds could expose internal, sensitive, and/or confidential information if it becomes publicly available. Beneficial ownership information, for example, could be used by competitors to ascertain information about a fund’s seed capital. In addition, beneficial ownership information, along with other identifying information provided in the Form, could be used by another firm to identify investors in a fund. It also could be used to track an investor’s market movements, thereby exposing or potentially compromising an adviser’s investment decision-making process, to the detriment of the investor. Treating the private fund information as confidential will enable the Commission to collect the information it deems necessary while protecting the proprietary nature of the information. Furthermore, keeping the information confidential will not harm current investors due to the fact that they are already provided with meaningful disclosure in Part 2 of Form ADV, the offering documents, and through due diligence efforts.





Second, the disclosure will unduly focus the attention of a firm’s non-fund adviser clients on what may be just one aspect of a firm’s business. For example, private funds may constitute less than 10% of an adviser’s business, but could be 90% of the adviser’s Part 1 disclosure. This could give investors a distorted view of an adviser’s business. In addition, the volume of public disclosure will highlight private funds that are not publicly available, and that are only available to sophisticated investors. The disclosure draws attention to information that is not relevant or appropriate for most clients.

Third, the public nature of this disclosure may lead to confusion as to what constitutes a public offering of a private fund. Advisers will be required to provide very specific information regarding private funds. As a result, it is not difficult to envision a scenario in which an adviser’s current clients or other members of the public not eligible to invest in the funds would approach an adviser about potential investment opportunities in private funds. Keeping the disclosure confidential will address this concern. At a minimum, the Commission should confirm that providing the requested disclosure will not constitute a public offering within the meaning of the private placement exemption (as provided in Form D).

Because of these concerns, the Commission should take steps to treat as confidential the private fund information submitted on the IARD, similar to the treatment currently afforded to social security numbers and certain personal, identifying information regarding sole proprietors. In addition, or as an alternative, the Commission could allow advisers to provide the very detailed private fund information non-publicly to the Commission in a searchable format instead of via the IARD system.5 Allowing The Commission has scheduled an open meeting on January 25, 2011 to consider proposing additional reporting requirements for advisers to private funds to implement the requirements of Sections 404 and 406 of the Dodd-Frank Act. It is possible that the private fund information that the Commission has proposed to include in Part 1 of Form ADV could instead be reported in conjunction with the systemic risk and other Ms. Elizabeth M. Murphy January 24, 2011 Page 4 advisers to provide the requested information apart from the IARD would address the confidentiality issues as well as the regulatory burden issues outlined below, while still providing the Commission with the information it seeks. We would be glad to meet with the staff to further discuss these issues.

2. The Commission Should Further Streamline the Information It Collects From Advisers We agree that the information collected from Form ADV is of critical importance to the Commission’s regulatory program. We support the gathering of appropriate information in order to help the Commission assess risk and allocate its examination resources accordingly. A balance must be struck, however, between the value of the additional information to the Commission and the regulatory burden to advisers.

The information the Commission proposes to collect has significantly expanded in detail and scope. Advisers would be required to answer twenty pages of questions in Part

1. The number of pages of questions in Schedule D has more than doubled from six pages to thirteen pages. Much of the information is sought on a fund basis so that the disclosure burden is even more significant for firms with multiple private funds. Taken as a whole, the disclosure currently proposed will result in a detailed, lengthy document that will be time consuming and require substantial resources to complete.

Given the volume of information requested, the process of submitting the data on the IARD will also be time consuming. Advisers will be required to manually keystroke data into the IARD system. The combined burden of collecting, reviewing, coordinating with affiliates or other entities, managing the information and responding to the disclosure requirements is already substantial for Part 1 and will be even more significant under the Proposal. Accordingly, we do not agree that the new requirements “should impose few additional regulatory burdens.”6 The overall regulatory burden is even more substantial when the disclosure obligations imposed by the recently revised Part 2A and Part 2B of Form ADV are also taken into consideration, as well as other recently adopted regulations.

In order to address these issues, the Commission could eliminate questions that ask for information that is not of high value to the SEC’s oversight program. For example, information regarding regulatory AUM attributable to each type of client, the summary of private fund investments by asset and liability class categorized in fair value hierarchy, and beneficial ownership information will be extremely difficult for advisers to capture and report, but will be of limited utility to the Commission. In the Appendix we reporting imposed by Sections 404 and 406. We would be glad to discuss this alternative with the staff once we have had the opportunity to review any additional reporting requirements proposed on January 25.

Proposal at 48.

Ms. Elizabeth M. Murphy January 24, 2011 Page 5 discuss our concerns regarding these reporting requirements and suggest a number of additional ways to streamline the disclosure requested.7 The Commission could also facilitate the collection of information by providing advisers with additional time to respond to certain items, such as those items requiring financial information. As currently drafted, advisers with audited private funds would be required to respond to the questions in Part 1 using unaudited financial information, which would not necessarily be in sync with other financial statements or disclosure documents. As an alternative, the Commission could allow those advisers additional time to report audited financial information. For example, advisers with audited funds could provide financial information requested in Part 1 of Form ADV 30 days after financial statements are distributed, or 150 days after the fiscal year end. This would provide more meaningful information to the Commission.

At a minimum, the Commission should provide advisers with additional time to implement the disclosure requirements that are not related to the registration threshold.

Additional time is needed due to the fact that some advisers would need to create new systems to collect information to respond to certain proposed disclosure requirements.

Conclusion

We commend the Commission for issuing this important proposal and we urge the Commission to modify the Proposal as suggested herein. We would appreciate the opportunity to meet with the Commission to discuss our comments. In the meantime, please do not hesitate to contact us if we may provide additional information or clarification regarding these matters.

–  –  –

General Instructions Accelerated Filing Deadlines: The Proposal requires advisers to amend Form ADV each year by filing an annual updating amendment within 90 days after the end of the adviser’s fiscal year. The Commission requests comment regarding whether the filing deadlines should be accelerated so that advisers would be required to file their amendments to Form ADV in less than 90 days after the end of the adviser’s fiscal year. We strongly oppose accelerating the filing deadline for Form ADV for any timeframe less than 90 days after an adviser’s fiscal year end. Many advisers need the full 90 days to review their businesses and provide the disclosure required by the current Form ADV and will need at least that much time to respond to the proposed disclosure requirements, particularly if they have multiple affiliates or private funds.

If the filing timeframe is accelerated, the quality of the disclosure could be negatively impacted.

Information Timeframe: The Commission should clarify the “as of” date or timeframe for all of the information submitted on Part 1 of Form ADV.



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