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News August 21, 2006 Issue

Guidance on Responding to Form ADV ‘Private Fund’ Questions Issued

As soon as the court issues its mandate in the Goldstein v. SEC case, Advisers Act Rule 203(b)(3)-1 will revert back to its pre-hedge fund rule status. Which means that the definition of "private fund" will officially disappear.

But that wonít make the references to "private fund" on Form ADV magically disappear at the same time. Currently, Item 7.B. of Form ADV asks, among other things, whether the adviser or any of its related persons advises any "private fund." Section 7.B. of Schedule D asks for details on investment pools managed by the adviser, including whether any of the pools are "private funds."

Last week, the SEC staff posted a guidance statement on the SECís IARD website addressing this conundrum. The guidance had been promised in the staffís August 10 no-action letter to the ABA Subcommittee on post-Goldstein transition issues.

In a nutshell, the staff told advisers that until the SEC gets around to amending the form, advisers can basically ignore those references to "private funds." If they want. While an adviser has the option of answering those questions as if the phrase "private fund" didnít appear, itís entirely optional. And an adviser doesnít have to amend its Form ADV in this regard unless it wants to.

For example, if the only reason an adviser answered yes to Item 7.B. was because it advised a private fund that is not otherwise an investment-related limited partnership or LLC, it could, if it wanted to, change the answer to "no" and delete all corresponding information on Schedule D of Section 7.B.

Of note: The guidance is applicable to all advisers, not just advisers that registered in response to the SECís hedge fund rule.

And again, remember that firms can go in and change their Form ADV answers if they want, or they can leave them as is. Even if an adviser happens to be amending its Form ADV for other purposes (for example, in a so-called "other than annual amendment"), there is no obligation to go in and amend the answers to Item 7.B and Section 7.B of Schedule D.