Client Alert

SEC Extends Prior Relief Granted to Investment Advisers and Registered Funds

01 Apr 2020

On March 25, 2020, the SEC issued exemptive orders replacing prior orders granting temporary relief from certain provisions of the Investment Advisers Act of 1940 (the “Advisers Act”) and the Investment Company Act of 1940 (the “1940 Act”). The SEC said that it has been monitoring developments related to the effect that COVID-19 and related remote work environments have had on the asset management industry. The new orders therefore generally extend previously granted relief by two months and eliminate certain conditions of the prior orders.

The 1940 Act Relief

For the period beginning on March 13, 2020 and extending until August 15, 2020, a registered fund or a business development company (BDC), and any investment adviser of or principal underwriter for that fund or BDC, are exempt from the in-person voting requirements related to approval or renewal of investment advisory and sub-advisory agreements, approval of a fund or BDC’s independent auditor, or approval of distribution agreements and Rule 12b-1 plans, provided that:

  • reliance on the order is necessary or appropriate due to circumstances related to current or potential effects of COVID-19;
  • the votes required to be cast at an in-person meeting are instead cast at a meeting in which trustees may participate by any means of communication that allows all participating trustees to hear each other simultaneously during the meeting; and
  • the board of trustees, including a majority of the trustees who are not “interested persons” of the fund or BDC, ratifies the action taken pursuant to this exemption by votes cast at their next in-person meeting.

The SEC also said that registered funds that are otherwise required to file Form N-CEN pursuant to Rule 30a-1 under the 1940 Act or Form N-PORT pursuant to Rule 30b1-9 under the 1940 Act—in cases where the original due date of such filings is on or after March 13, 2020 but on or prior to June 30, 2020—are temporarily exempt from such form-filing requirements provided that:

  • The registered fund is unable to meet a filing deadline due to circumstances related to current or potential effects of COVID-19;
  • Any registered fund relying on the revised order promptly notifies the SEC staff (via email at IM-EmergencyRelief@sec.gov) that the fund is relying on the revised order;
  • Any registered fund relying on the revised order discloses on its website that it is relying on the revised Order;
  • The fund files the required Form N-CEN or Form N-PORT, as the case may be, as soon as practicable, but not later than 45 days after the original due date; and
  • Such filings include a statement that the fund relied on the revised order and the reasons why it was unable to file such report(s) on a timely basis.

The revised order also clarifies that registered funds, including unit investment trusts (UITs) that otherwise would be required to transmit annual and semi-annual reports to investors during the time period from March 13, 2020 until June 30, 2020 can delay such transmission under the following conditions:

  • The fund or UIT is unable to prepare or transmit the report due to circumstances related to current or potential effects of COVID-19;
  • A fund or UIT that relies on the revised order promptly notifies the SEC staff (via email at IM-EmergencyRelief@sec.gov) that it is relying on the revised order;
  • The fund or UIT relying on the revised order includes a statement on its website disclosing that it is relying on the revised order; and
  • The fund or UIT transmits the reports to shareholders as soon as practicable, but not later than 45 days after the original due date and files the report with the SEC within 10 days of its transmission to shareholders.

The SEC also provided temporary relief from the requirement that closed-end funds and BDCs (“Companies”) file with the SEC a notice of intention to call or redeem securities at least 30 days in advance. Such Companies may file a Form N-23C-2 with the SEC fewer than 30 days prior to, including the same business day as, a Company’s call or redemption of securities of which it is the issuer provided that the Company meets the following conditions:

  • The Company notifies the SEC  staff (via email at IM-EmergencyRelief@sec.gov) that the Company is relying on the revised order;
  • The Company ensures that filing such a notice on an abbreviated time frame is permitted under relevant state law and the Company’s governing documents; and
  • The Company files a notice that contains all the information required by Rule 23c-2 prior to:
    • any call or redemption of existing securities;
    • the commencement of any offering of replacement securities; and
    • providing notification to the existing shareholders whose securities are being called or redeemed.

Finally, the SEC granted relief exempting a registered fund that is otherwise required to deliver the fund’s current prospectus to investors (other than in the case of an initial purchase of shares) during the period from March 25, 2020 until June 30, 2020 from such delivery obligation under the following conditions:

  • The fund is unable to timely deliver its prospectus because of circumstances related to COVID-19;
  • The fund notifies the SEC staff (via email at IM-EmergencyRelief@sec.gov) that the fund is relying on this order;
  • The fund discloses on its website that it intends to rely on this order and publishes its current prospectus on its website; and
  • The prospectus is delivered to investors as soon as practicable, but not later than 45 days after the date originally required.

In light of the rapidly changing circumstances in which such funds find themselves, the SEC will no longer require a fund relying on this relief to include, in its email correspondence to SEC staff and on its website, a description of the reasons why it or any other person could not deliver the prospectus to investors on a timely basis, or to provide the SEC staff with an estimated date by which it expects the prospectus to be delivered.

The Advisers Act Relief

The SEC extended previously granted exemptions to registered investment advisers and exempt reporting advisers that are unable to meet certain filing deadlines or delivery requirements due to circumstances related to current or potential effects of COVID-19, and that are otherwise obligated to make their filings or deliver certain documents during the period beginning on March 13, 2020 and ending June 30, 2020. Specifically, such exemptions are granted to:

  • Registered advisers filing amendments to their existing Form ADV under Rule 204-1 of the Advisers Act;
  • Registered advisers delivering a brochure (Form ADV Part 2) or a summary of material changes to Form ADV Part 2 to existing clients as required by Rules 204-3(b)(2) and 204-3(b)(4) under the Advisers Act;
  • Exempt reporting advisers filing reports on Form ADV (either an initial report or an amendment to an existing report) as required by Rule 204-4 under the Advisers Act; and
  • Advisers filing Form PF under Section 204(b) of and Rule 204(b)-1 under the Advisers Act.

These exemptions apply only to advisers that meet the following conditions:

  • An adviser relying on the revised order with respect to the filing of Form ADV or delivery of its brochure, summary of material changes, or brochure supplement must promptly notify the SEC (via email at IARDLive@sec.gov) and disclose on its public website (or if it does not have a public website, promptly notify its clients and/or private fund investors):
  • that it is relying on the relief contained in the revised order;
  • the reasons why it could not file or deliver its Form ADV, brochure, summary of material changes, or brochure supplement on a timely basis; and
  • the estimated date by which the adviser expects to file or deliver the Form ADV, brochure, summary of material changes, or brochure supplement.
  • An adviser relying on the Form PF aspect of the order must promptly notify the SEC (via email at FormPF@sec.gov) that it is relying on the order, including a brief description of the reasons why it could not file its Form PF on a timely basis, and the estimated date by which it expects to file the Form PF.

An adviser relying on the Advisers Act relief must file its Form ADV or Form PF, as applicable, and deliver the brochure (or summary of material changes) and brochure supplement as soon as practicable, but no later than 45 days after the original due date.

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