An Exempt Reporting Adviser (ERA) is an investment adviser that is not required to fully register with the SEC (as a Registered Investment Adviser or RIA) but is still required to report certain basic information to regulators.
This status was created by the Dodd-Frank Act to provide a “middle ground” for smaller private fund managers and venture capital firms, allowing them to operate with a lighter regulatory burden while still being subject to SEC oversight.
How to Qualify as an ERA
To qualify as an ERA, an adviser must fall into one of two specific categories:
1. The Private Fund Adviser Exemption
This is the most common path for hedge fund and private equity managers.
- Asset Limit: You must manage less than $150 million in Regulatory Assets Under Management (RAUM) in the U.S.
- Client Type: You must advise only “private funds” (typically 3(c)(1) or 3(c)(7) funds). You cannot have any individual clients or managed accounts.
2. The Venture Capital Fund Adviser Exemption
This path is specifically for VC firms and has no asset limit, but strict operational rules.
- Exclusivity: You must solely advise venture capital funds.
- Fund Restrictions: The funds you manage must meet the legal definition of a “venture capital fund,” which includes:
- Holding no more than 20% of the fund’s capital in “non-qualifying” investments (most of the fund must be in direct equity of private companies).
- Limited leverage (borrowing) at the fund level.
- No redemption rights for investors (except in extraordinary circumstances).
What is Required of an ERA?
Being “exempt” does not mean you are invisible to the SEC. If you qualify, you must still:
- File Form ADV Part 1A: You must submit a “lite” version of the Form ADV. This includes information about the owners of the firm, the funds you manage, and any disciplinary history.
- Annual Updates: You must update your Form ADV filing annually within 90 days of your fiscal year-end.
- Pay Fees: You still pay filing fees to the IARD system and the states where you operate.
- Maintain Policies: You must establish written policies to prevent the misuse of material non-public information (Insider Trading) and follow federal anti-fraud provisions.
- State Requirements: Most states require ERAs to “notice file” and pay a state fee if they have an office or a certain number of clients in that state.
ERA vs. RIA: Key Differences
| Feature | Exempt Reporting Adviser (ERA) | Registered Investment Adviser (RIA) |
|---|---|---|
| Registration | Partial (Form ADV Part 1A) | Full (Part 1A, 2A, and 2B) |
| Compliance Program | Not strictly required by SEC | Mandatory Chief Compliance Officer (CCO) |
| SEC Exams | Rare (but the SEC has the authority) | Routine and periodic |
| Custody Rule | Exempt | Must comply (often requires audits) |
Critical Note: If you rely on the Private Fund Exemption and your assets grow to $150 million or more, you generally have 90 days from your fiscal year-end to file for full RIA registration.
Would you like me to look up the specific “notice filing” requirements for a particular state to see what they charge ERAs?