U.S. Regulations of Non-U.S. Fund Managers and Reporting Requirements

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Applicable United States Regulation of Fund Managers and Reporting Requirements


The following is an overview of certain U.S. laws and regulations that apply to non-U.S. investment funds and their fund managers to the extent they may have U.S. investors, advise U.S. clients, or have U.S. source income. Although non-U.S. fund managers often qualify for exemptions from registration in the U.S. as an “investment adviser,” certain non-U.S. fund managers are subject to reporting requirements in the United States. In addition, non-U.S. investment funds with U.S. source income may be subject to substantial U.S. tax withholding to the extent they do not comply with certain reporting and other obligations to the United States Internal Revenue Service (the “IRS”).


I.     Investment Adviser Regulation

The Investment Advisers Act of 1940 (the “Advisers Act”) regulates persons and entities that advise others on investments in securities. Included within the scope of the Advisers Act are the managers of private funds. Even private fund managers that are not based in the United States and that manage only non-U.S. funds and clients may fall within the scope of regulation under the Advisers Act if there are U.S. investors investing in the private funds they manage. Certain fund managers are required to register with the U.S. Securities and Exchange Commission (the “SEC”), but many private fund managers qualify for an exemption to such registration. The relevant exemptions, reporting requirements, and certain other rules under the Advisers Act that may be applicable to non-U.S. fund managers are discussed below.

Foreign Private Adviser Exemption

There is an exemption from registration requirements under the Advisers Act for “Foreign Private Advisers.” Foreign Private Advisers are not subject to the reporting requirements and recordkeeping requirements discussed below that apply to “Private Fund Advisers.” To qualify as a “Foreign Private Adviser” a fund manager must:

  • have no place of business in the United States;
  • have fewer than 15 clients and investors in the United States in private funds advised by the investment adviser;
    • For the purpose of counting the 15 U.S. investors, the fund manager generally must “look through” certain entities that are essentially pooled investment vehicles and count the ultimate beneficial owners of such entities. For example, a master fund in a master-feeder fund structure would have to count all U.S. holders of securities of any feeder fund as investors.
    • For the purpose of determining whether a client or investor is in the Unites States, the Advisers Act incorporates the definition of a “U.S. Person” set forth in Regulation S of the Securities Act of 1933. This definition includes natural persons resident in the U.S. and entities formed under U.S. law, but specifically excludes international organizations such as the Inter-American Development Bank, the Asian Development Bank, and the African Development Bank.
  • have aggregate assets under management attributable to clients in the United States and investors in the United States in private funds advised by the investment adviser of less than $25 million; and
    • To calculate assets under management, the method for determining “regulatory assets under management” in Part 1 of Form ADV is used. For assets under management relating to private funds managed by the adviser, one must determine the current market value (or fair value if market value is unavailable) of the private fund’s assets and the contractual amount of any uncalled commitment of fund investors.
  • not hold itself out generally to the public in the United States as an investment adviser.

Private Fund Adviser Exemption

Non-U.S. advisers that have exceeded the 15 investor/$25 million thresholds discussed above or are otherwise not able to qualify as a “Foreign Private Adviser” may still be exempt from registration as an investment adviser in the U.S. if they qualify as a “Private Fund Adviser.” Although “Private Fund Advisers” are exempt from the comprehensive regulation and reporting requirements of the Advisers Act, it is important to note that a Private Fund Adviser will have certain reporting and other compliance obligations under the Advisers Act (discussed further below). To qualify as a “Private Fund Adviser” a non-U.S. investment adviser (i.e., an adviser whose principal office and place of business is outside the United States) must:

  • Have no client that is a “United States person” other than “qualifying private funds” (which generally refers to investment funds that are not required to register in the U.S. under the Investment Company Act of 1940); and
  • If any assets are managed by the investment adviser from a place of business in the United States, (1) all such assets managed must be solely attributable to private funds and (2) the total value of those assets must be less than $150 million.

In other words, there is no limitation on the type or number of non-U.S. clients a non-U.S. Private Fund Adviser may have or on the amount of assets it manages outside of the U.S. So long as the investment adviser is not managing assets (e.g. making its investment decisions) from a place of business in the U.S., there is also no limit on its amount of assets under management. For an investment adviser that only manages assets from a place of business outside of the U.S., the critical consideration for maintaining the Private Fund Adviser exemption is avoiding U.S. advisory clients other than private funds. If a non-U.S. adviser, for instance, manages accounts of one or more individual U.S. investors, for instance, it will not be able to take advantage of this exemption from registration with the SEC.

Reporting Requirements for “Private Fund Advisers”

Advisers claiming an exemption from registration as a “Private Fund Adviser” must file annual reports with the SEC electronically on Form ADV through the Investment Adviser Registration Depository (www.iard.com). A Private Fund Adviser must submit its initial Form ADV within 60 days of relying on the Private Fund Adviser exemption from registration and must file annual Form ADV amendments 90 days after the end of each fiscal year.

Private Fund Advisers only need to complete certain items in Part 1 of Form ADV and are not required to complete Part 2 of the Form ADV.[1] These items report basic identifying information about the adviser’s owners and affiliates, business activities that may present conflicts of interest, information about the relevant Advisers Act exemption on which it is relying, and disciplinary information regarding itself and its employees. Of particular note, an adviser must provide information about each private fund it manages, the private fund’s gross assets, the private fund’s investment strategy (based on an enumerated list of potential categories), and the private fund’s auditors, prime brokers, custodians, and administrators.[2]

Recordkeeping Requirement for “Private Fund Advisers”

Section 204 of the Advisers Act requires investment advisers to keep such records and to prepare and file such other reports as the SEC may prescribe by rule. Although Foreign Private Advisers are expressly exempt under the Advisers Act from the requirements of Section 204, Private Fund Advisers are not exempt. Hence Private Fund Advisers can be subject to SEC recordkeeping requirements, and the SEC will have the authority to examine such records. Specific recordkeeping obligations, which could significantly increase Private Fund Advisers’ compliance costs, have not been established but could be the subject of future SEC rulemaking.

Other Compliance Requirements.

  • The anti-fraud provisions of the Advisers Act apply to all investment advisers, whether registered or exempt from SEC registration. These provisions of the Advisers Act require advisers, among other things, to disclose all material facts (and not make any material omissions) to current or prospective investors, and to disclose to their clients actual and potential conflicts of interest.
  • Private Fund Advisers must comply with the Advisers Act’s “pay to play” rules that prohibit payments to certain third parties to solicit government clients and restrict payments and contributions to certain government officials and political parties. “Pay to Play” rules apply to foreign private advisers that advise U.S. state and local government funds. If a non-U.S. adviser does not solicit or accept any government funds from U.S sources, this is probably not applicable.
  • Private Fund Advisers are required to establish, maintain and enforce written policies and procedures reasonably designed, taking into consideration the nature of such investment adviser’s business, to prevent the misuse of material, nonpublic information (this relates to insider trading with information regarding publicly traded companies). If a non-U.S. adviser and the fund it manages will not be investing in U.S. publicly traded securities, this does not seem to be a material concern.
  • Private Fund Advisers must provide clients and fund investors with a privacy notice describing their practices for maintaining privacy of non-public personal information, at the time of establishing a customer relationship. Private Fund Advisers must also send clients and fund investors annual privacy notices, except when the adviser: (i) only provides non-public personal information to unaffiliated third parties for limited purposes, and (ii) has not changed its policies and practices from those disclosed in the adviser’s most recent privacy notice provided to clients and fund investors.

II.      IRS Withholding and Reporting Requirements

Certain non-U.S. funds are subject to rather onerous withholding and information reporting requirements under the Foreign Account Tax Compliance Act of 2010 (“FATCA”). FATCA imposes a withholding tax at a 30% rate on all “withholdable payments” to a “foreign financial institution” (an “FFI”) unless such FFI registers with the IRS and enters into an agreement (an “FFI Agreement”) with the IRS governing certain reporting and withholding obligations with respect to its U.S. account holders.[3] An FFI includes a non-U.S. entity that is engaged primarily in the business of investing, reinvesting or trading in securities, partnership interests, and other specified financial assets. Although there are some limited exemptions, this broad definition generally includes investment entities such as private equity funds. “Withholdable payments” subject to FATCA withholding are U.S. source interest, dividends, rents, salaries, wages, premiums, annuities, and other fixed or determinable annual or periodic gains, profits, and income (collectively referred to as “FDAP” income for U.S. tax purposes), and gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the U.S.

If a non-U.S. fund will be deploying all of its capital in investments in non-U.S. companies, it seems unlikely that there will be any U.S. sourced receipts for the fund that would be subject to 30% withholding under FATCA. If this were the case, there would generally be no compelling reason requiring the fund to enter into an FFI Agreement (and comply with the onerous information reporting thereunder). However, in certain cases, funds with no or very little U.S. source income may decide to register with the IRS and enter into FFI Agreements to the extent certain of their investors that are also FFIs require it as a condition to their investment. Furthermore, it is important to note that non-U.S. funds may sometimes have unexpected exposure to U.S. income. For example, interest paid by foreign branches of U.S. banks is considered U.S. source income and would be subject to FATCA withholding. Certain money market type instruments may also involve U.S. source income. It is therefore important to analyze whether a non-U.S. fund may have exposure to U.S. source income.


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[1] Private Fund Advisers must complete Item 1 (Identifying Information), Item 2. B and C (SEC and State Reporting by Exempt Reporting Advisers), Item 3 (Form of Organization), Item 6 (Other Business Activities), Item 7 (Financial Industry Affiliations and Private Fund Reporting), Item 10 (Control Persons), Item 11 (Disclosure Information, e.g., disciplinary history); and Schedules A, B, C, and D with respect to any corresponding answers to the above items.

[2] For more information, see Item 7.B on Part 1 of Form ADV and the corresponding sections of Schedule D.

[3] Under an FFI Agreement, a “participating” FFI generally must (1) undertake certain identification and due diligence procedures with respect to its accountholders, (2) report annually to the IRS on its accountholders who are U.S. persons or foreign entities with substantial U.S. ownership, and (3) withhold and pay over to the IRS 30% of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income, made to “recalcitrant account holders” (meaning generally those investors or account holders in the FFI who not provide the information required to meet the IRS’s verification standards) or to other FFIs who have not entered into FFI Agreements.

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