While much has been written about the growth of the registered investment adviser (“RIA”) market, often overlooked is the even more impressive growth of the exempt reporting adviser (“ERA”) market. Today, there are 3,464 private fund advisers registered with the Securities and Exchange Commission (“SEC”) as ERAs. This new private fund registration exemption first came into existence in 2012 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Since then, the number of private fund advisers registered as ERAs has grown steadily each month. The growth in ERAs can serve as a partial proxy for tracking the the number of new and emerging private fund advisers established each month.
What is an exempt reporting adviser?
An exempt reporting adviser is an advisory firm that generally relies on either the Private Fund Adviser Exemption (Advisers Act Section 203(m)-1) or the Venture Capital Fund Adviser Exemption (Advisers Act Section 203(l)-1). As part of Dodd-Frank, the SEC adopted the Private Fund Investment Advisers Registration Act of 2010 which created new exemptions which allowed some private fund advisers to qualify as ERAs and not be required to register as a traditional RIA. These exemptions generally apply to advisers to venture capital funds or to private fund advisers with less than $150 million in assets under management (“AUM”) that are not required to register with the relevant state(s).
Determining whether a private fund adviser should register as an ERA or RIA at the federal or state jurisdiction level is complex. Private fund advisers should always seek proper guidance to ensure that the firm is properly registered. Furthermore, the post-registration regulatory requirements for private funds registered as an ERA or RIA will vary.
How many exempt reporting advisers are there?
Since the private fund registration requirement took effect in 2012, the number of federally-registered ERAs has increased from 2,124 firms in July 2012 to 3,464 firms in July 2017. This 63.1% cumulative increase in the total number of ERAs registered with the SEC reflects the continued growth of the private fund universe. It’s also important to note that the current figure of 3,464 ERAs does not include any private fund advisers that are registered as ERAs at the state level or any such advisers that are registered as traditional RIAs at the state or federal level.
As the chart below reflects, the growth of venture capital and smaller private equity funds that qualify as ERAs has been consistent over the past five years:
Source: Publicly available sec.gov information.
How does the growth of exempt reporting advisers compare to registered investment advisers?
While the SEC-registered RIA market continues to grow at a robust pace, the number of SEC-registered ERAs is growing at an even more rapid pace. The chart below shows the number of SEC-registered RIAs and ERAs from July 2012 to July 2017:
Source: Publicly available sec.gov information. Does not include any state-registered RIA or ERA firms.
Be sure to check back soon as we continue to provide more relevant SEC investment adviser and private fund adviser statistics and insights.