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SEC Adopts New Part 2 of Form ADV: Disclosure Requirements for SEC and Connecticut Registered Investment Advisers

February 25, 2011

Authors: Michael J. Fritz

The Securities and Exchange Commission recently adopted amendments to Part 2 of Form ADV. The amendments signify meaningful changes to Form ADV in not only the form of disclosure provided, but the content and level of accessibility to the public.

Part 2 of Form ADV is divided into two sub-parts -- Part 2A and Part 2B. Part 2A, or the “brochure,” contains 18 required disclosure items about the investment adviser including information about the adviser’s qualifications, its investment strategies, the education and business backgrounds of its principals, and its business activities. Part 2B, which is referred to as the “brochure supplement,” includes information about certain advisory personnel, such as educational background, business experience and disciplinary history (if any).

Investment advisers that advise private investment funds should pay particular attention to the level of detail disclosed in Part 2 about the private investment funds they advise, all of which information will be publicly available. Advisers that provide information beyond what is required under Part 2 could jeopardize the private investment fund’s exemption from registration under the Securities Act of 1933, as amended, if the disclosure is deemed a “general solicitation” (which is not permitted if a fund seeks to rely on exemptions from registration under the Securities Act). The SEC staff has stated that it believes advisers can provide the information required under Part 2 without losing their ability to rely on the exemptions from registration. The SEC has cautioned, however, that advisers refrain from disclosing certain fund information, such as, performance and financial information, which could be construed as conditioning the market and deemed a public offering under the securities laws. To view a complete summary of the new disclosure requirements, please click here.

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