The SEC has adopted a new "foreign private adviser" exemption from Advisers Act registration.  To utilize the exemption, an adviser must not hold itself out as an investment adviser in the U.S. and must have (i) no place of business in the U.S., (ii) fewer than 15 U.S. clients (including investors in private funds domiciled outside the U.S.), and (iii) less than $25 Million in AUM attributable to U.S. clients.   For purposes of counting fund investors, the SEC defers to Sections 3(c)(1) and 3(c)(7) of the Investment Company Act including the look-through rules.  The SEC looks to Regulation S for defining a "U.S. person."  If a non-U.S. adviser cannot fit within this new "foreign private adviser" exemption (e.g. more than $25 Million in AUM from U.S. investors), it may be able to rely on the exemption for fund advisers with less than $150 Million, but such an adviser must count non-U.S. assets toward the $150 Million threshold.  Additionally, such exempt fund managers would be required to file an ADV as an "exempt reporting adviser."  Even if a non-U.S. adviser has no U.S. clients or fund investors, it may still need to register if it makes use of "U.S. jurisdictional means in connection with its advisory business."

OUR TAKE: This new "foreign private adviser" exemption is very limited because of the $25 Million cap.  We expect most non-U.S. advisers that have U.S. clients will need to focus on the private fund adviser exemption.