IM Guidance Update

MARCH 2016 | No. 2016-03

FAST ACT CHANGES AFFECTING INVESTMENT ADVISERS TO SMALL BUSINESS 

INVESTMENT COMPANIES

On December 4, 2015, President Obama signed into law the Fixing America’s Surface 

Transportation Act (the “FAST Act”).1

 The Fast Act amended two provisions of the 

Investment Advisers Act of 1940 (the “Advisers Act”) regarding the registration of 

investment advisers to small business investment companies (“SBICs”).2

Prior to the enactment of the FAST Act, only advisers solely to one or more “venture 

capital funds,” as defined in rule 203(l)-1,3 could rely on the exemption from investment 

adviser registration in Advisers Act section 203(l) (the “venture capital fund adviser 

exemption”). The FAST Act revised the venture capital fund adviser exemption by 

deeming SBICs to be venture capital funds for purposes of the exemption. Because 

an SBIC may not necessarily have the characteristics of a rule 203(l)-1 venture capital 

fund, an adviser that managed both rule 203(l)-1 venture capital funds and SBICs may 

not previously have qualified for the venture capital fund adviser exemption. As a result 

of the FAST Act amendments, an adviser whose only clients are rule 203(l)-1 venture 

capital funds and/or SBICs may rely on the venture capital fund adviser exemption.

Also prior to the enactment of the FAST Act, only advisers solely to private funds that 

had assets under management in the United States of less than $150 million could rely 

on the exemption from investment adviser registration in Advisers Act section 203(m) 

(the “private fund adviser exemption”). The FAST Act revised the private fund adviser 

exemption by excluding SBIC assets from counting towards the $150 million threshold. 

As a result, an adviser that has assets under management in the United States of less 

than $150 million attributable to its non-SBIC private fund clients may rely on the 

private fund adviser exemption regardless of the assets under management in the 

United States attributable to its SBIC client(s).

US Securities and Exchange Commission

 Division of Investment Management
IM GUIDANCE UPDATE 2

Prior to the amendments described above, advisers solely to SBICs could rely on the 

exemption from investment adviser registration in Advisers Act section 203(b)(7)4

(the “SBIC adviser exemption”).5 With these amendments, it is the staff’s view that an 

adviser currently relying on the SBIC adviser exemption and advising only SBICs may 

choose to instead: (1) rely on the venture capital fund adviser exemption and advise 

both SBICs and rule 203(l)-1 venture capital funds; or (2) rely on the private fund 

adviser exemption and advise both SBICs and non-SBIC private funds, provided those 

non-SBIC private funds account for less than $150 million in assets under management. 

However, unlike an adviser relying on the SBIC adviser exemption, the staff believes 

that an SBIC adviser that chooses to rely on either the venture capital fund adviser 

exemption or the private fund adviser exemption is required to submit reports to the 

Commission as an exempt reporting adviser.6

In addition, the staff believes that, as a result of the FAST Act amendments to the 

Advisers Act, an adviser currently relying on either the venture capital fund adviser 

exemption or the private fund adviser exemption to not register may now obtain 

SBIC clients consistent with the revised exemptions from registration. Finally, the 

staff notes that certain registered advisers that advise SBICs may be eligible to 

withdraw their registration and begin reporting to the Commission as exempt reporting 

advisers under either the venture capital fund adviser exemption or the private fund 

adviser exemption.7 

Division staff is currently developing a recommendation for the Commission to consider 

that would amend Advisers Act rules 203(l)-1 and 203(m)-1 to reflect the FAST Act 

amendments to the Advisers Act. Until any final rule changes are considered and acted 

upon by the Commission, the staff would not object to an adviser relying on the FAST 

Act amendments to the venture capital fund adviser exemption or the private fund 

adviser exemption, provided that such an adviser files the reports required of an exempt 

reporting adviser on Form ADV.

Endnotes

1 Pub. L. No. 114-94, 129 Stat. 1312 (Dec. 4, 2015). 

2 For purposes of the Advisers Act sections 203(l) and (m), an SBIC is (other than an 

entity that has elected to be regulated or is regulated as a business development 

company pursuant to section 54 of the Investment Company Act of 1940): (A) 

a small business investment company that is licensed under the Small Business 

Investment Act of 1958 (“SBIA”), (B) an entity that has received from the Small 
IM GUIDANCE UPDATE 3

Business Administration notice to proceed to qualify for a license as a small 

business investment company under the SBIA, which notice or license has not been 

revoked, or (C) an applicant that is affiliated with 1 or more licensed small business 

companies described in subparagraph (A) and that has applied for another license 

under the SBIA, which application remains pending. See Advisers Act section 

203(b)(7).

3 Generally, the rule defines a venture capital fund as any private fund that: (i) holds 

no more than 20 percent of the fund’s capital commitments in non-qualifying 

investments (other than short-term holdings); (ii) does not borrow or otherwise 

incur leverage in excess of 15 percent of the fund’s capital commitments, other than 

limited short-term borrowing (excluding certain guarantees of qualifying portfolio 

company obligations by the fund); (iii) does not offer its investors redemption or 

other similar liquidity rights except in extraordinary circumstances; (iv) represents 

itself as pursuing a venture capital strategy to its investors and prospective 

investors; and (v) is not registered under the Investment Company Act and has not 

elected to be treated as a business development company. See rule 203(l)-1(a).

4 Advisers Act section 203(b)(7) provides an exemption from registration for any 

investment adviser, other than any entity that has elected to be regulated or is 

regulated as a business development company pursuant to section 54 of the 

Investment Company Act of 1940 (15 U.S.C. 80a-54), who solely advises (A) SBICs 

that are licensees under the Small Business Investment Act of 1958; (B) entities that 

have received from the Small Business Administration notice to proceed to qualify 

for a license as an SBIC under the Small Business Investment Act of 1958, which 

notice or license has not been revoked; or (C) applicants that are affiliated with 1 

or more licensed SBICs described in subparagraph (A) and that have applied for 

another license under the Small Business Investment Act of 1958, which application 

remains pending.

5 Advisers relying on the exemptions from registration as investment advisers in 

either section 203(m) or 203(l) are deemed “exempt reporting advisers” because 

they are subject to annual reporting requirements under Commission rules. An 

adviser relying on the SBIC adviser exemption, on the other hand, is not subject to 

annual reporting requirements to the Commission.

6 An unregistered adviser becoming an exempt reporting adviser must submit its 

initial Form ADV filing within 60 days of relying on the exemption from registration 

under either Advisers Act section 203(l) or 203(m). See General Instruction 13 on 
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Form ADV. For instructions on how to establish an Investment Adviser Registration 

Depository (IARD) account to file electronic reports and related information 

for exempt reporting advisers, visit this page: http://www.sec.gov/divisions/

investment/iard.shtml.

7 An adviser switching from being registered to being an exempt reporting adviser 

must file a Form ADV-W partial withdrawal prior to submitting its first report as 

an exempt reporting adviser. See General Instruction 13 to Form ADV. The adviser 

should check “No” for Item 2A in response to whether the adviser has ceased 

conducting advisory business and select “Switching to be an SEC ERA” for Item 2B 

as the reason for withdrawal. See also Form ADV FAQs, available at: https://www.

sec.gov/divisions/investment/iard/iardfaq.shtml#advw.

IM Guidance Updates are recurring publications that summarize the staff’s views 

regarding various requirements of the federal securities laws. The Division generally 

issues IM Guidance Updates as a result of emerging asset management industry trends, 

discussions with industry participants, reviews of registrant disclosures, and no-action 

and interpretive requests.

The statements in this IM Guidance Update represent the views of the Division of 

Investment Management. This guidance is not a rule, regulation or statement of the 

Securities and Exchange Commission. Further, the Commission has neither approved 

nor disapproved its content. Future changes in rules, regulations and/or staff no-action 

and interpretive positions may supersede some or all of the guidance in a particular 

IM Guidance Update.

The mission of the Securities and Exchange Commission is to protect investors; maintain fair, 

orderly, and efficient markets; and facilitate capital formation.

If you have any questions about this IM Guidance Update, please contact:

Jennifer Songer

Investment Adviser Regulation Office – Private Funds

Phone: 202.551.6999

Email: IARDLIVE@sec.gov