A state-registered investment adviser (IA) firm manages assets for 75 clients. All clients are residents of State A, where the IA's principal office is located. The firm's total assets under management (AUM) are $95 million. The IA is considering expanding its services to include managing private funds, which would increase its AUM to $110 million. Which of the following statements accurately describes the IA's registration obligations?
- AThe IA must register with the SEC immediately upon managing a private fund, irrespective of AUM.
- BThe IA must remain state-registered because its AUM is below the SEC's $150 million threshold for private fund advisers.
- CThe IA can choose to remain state-registered or register with the SEC once its AUM exceeds $100 million.
- DThe IA must register with the SEC once its AUM exceeds $100 million, regardless of client type.
Show answer & explanationAnswer & explanation
Correct answer: D. The IA must register with the SEC once its AUM exceeds $100 million, regardless of client type.
Generally, an IA must register with the SEC if its AUM reaches or exceeds $100 million. While there are specific exemptions related to private funds, the primary threshold for SEC registration for most IAs is $100 million AUM. Once the AUM reaches $110 million, the IA crosses this threshold.
Why the other options are wrong
- A. Managing a private fund does not automatically trigger SEC registration; AUM thresholds and specific exemptions (like the private fund adviser exemption under $150M) still apply.
- B. The $150 million threshold is specifically for the 'private fund adviser exemption' for *not* having to register with the SEC. Here, the IA is not exclusively a private fund adviser and crosses the general $100M threshold.
- C. Once AUM exceeds $100 million, SEC registration generally becomes mandatory, not optional, unless specific exemptions are met.
IA Registration Thresholds (State vs. SEC)
Investment advisers generally register with the state if their assets under management (AUM) are less than $100 million, and with the SEC if their AUM are $100 million or more. Specific exemptions exist for certain types of advisers (e.g., private fund advisers).
- State registration for AUM < $100 million.
- SEC registration for AUM ≥ $100 million (or $110 million buffer).
- Dodd-Frank Act increased the threshold from $25 million to $100 million.
- There's a 'buffer' up to $110 million before mandatory SEC registration for some IAs.
Memory trick: Hundred Million: The line in the sand, SEC or State, take a stand.