Locke Lord QuickStudy: SEC Provides Exemptive Relief to Investment Advisers and Investment Companies in Response to Coronavirus

On March 13, 2020, the Securities and Exchange Commission (the “SEC”) announced two releases providing regulatory relief for investment funds and investment advisers whose operations may be impacted by COVID-19. In announcing this relief, SEC Chairman Jay Clayton stated that the SEC continues to monitor the impact of the coronavirus and intends the March 13^th relief to assist affected investment advisers and registered funds in continuing to meet the expectations of their clients and investors.

Investment Advisers Act Relief

The SEC has issued Investment Advisers Act Release No. 5463 which provides temporary exemptions for filing and delivery obligations under the Investment Advisers Act of 1940 (the “Advisers Act”) that are due on or after March 13, 2020 and prior to April 30, 2020.Investment advisers relying on Release 5463 will be required to make the relevant filing or delivery for which relief is granted as soon as practicable, but no later than 45 days after the original due date.

The relief granted in Release 5463 applies to the following:

1. Rule 204-1 of the Adviser Act related to the annual updating amendment to Form ADV for registered investment advisers;
2. Rule 204-3(b)(2) and (b)(4) related to the delivery by a registered investment adviser of its Form ADV Part 2 to its existing clients;
3. Rule 204-4 related to the annual filing with the SEC on Form ADV for exempt reporting advisers; and
4. Section 204(b) of the Advisers and Rule 204(b)-1 requiring registered investment advisers to file Form PF.

In order to avail itself of the exemptions provided by Release 5463, an investment adviser must be unable to meet a filing deadline or delivery requirement due to circumstances related to COVID-19 and promptly notify the SEC via email and disclose on its website (or provide prompt notice to its clients if it does not maintain a website) that (i) it is relying on Release 5463, (ii) provide a brief description of the reasons why it could not meet the original filing or delivery deadline, and (iii) provide the estimated date by which it expects to make such filing or delivery. If the investment adviser is relying on the exemptive relief with respect to the filing of its Form PF, it must provide the same information by email to the SEC, but is not required to make any public disclosure on its website.

Investment Company Act Relief:

The SEC also issued Investment Company Act Release No. 33817 which provides relief from (i) in-person meetings for registered management investment companies and business development companies (“BDC”); (ii) Forms N-CEN and N-PORT filing requirements; (iii) Form N-23C-2 filing requirements; (iv) transmittals of annual and semi-annual reports to investors under the Investment Company Act of 1940 (the “1940 Act”); and (v) certain prospectus delivery requirements under the 1940 Act.

Release 33817 provides for an exemption from the 1940 Act requirement that votes of the board of directors of a registered management investment company or BDC be cast in-person for meetings held between March 13, 2020 and June 15, 2020, provided that reliance on Release 33817 is necessary or appropriate due to circumstances related to the current or potential effects of COVID-19 and that the required votes are instead cast at a meeting in which directors may participate telephonically or otherwise such that all directors can hear each other simultaneously.  In addition, the board of directors, including a majority of the disinterested directors, must ratify the action taken by a vote cast at the next in-person meeting.

Release 33817 further provides relief for N-CEN, N-PORT, and N-23C-3 filing obligations which are required to be filed between March 13, 2020 and April 30, 2020.Investment companies desiring to rely on the relief provided in Release 33817 because they are unable to meet the filing deadline due to circumstances related to COVID-19 are required to:

1. Promptly notify the SEC via email stating that it is relying on Release 33817 and provide a brief description of the reasons why it could not file its report on and timely basis and the estimated date by which it expects to file its report; and
2. Include a statement on its public website briefly stating that it is relying on Release 33817 and the reasons why it could not file its reports on a timely basis.

The registered fund must file its Form N-CEN or Form N-PORT as soon as practicable following the relevant deadline, but no later than 45 days after the original due date and include in the filing a statement that the registered fund relied on Release 33817 and the reasons it was unable to file on a timely basis.

The SEC has also provided relief for closed-end funds and BDCs with respect to the filing of Form N-23C-2 notice filing.  Such funds may file a Form N-23C-2 notice filing fewer than 30 days prior than the date it desires to call or redeem securities, including the same day that such call or redemption is to occur, provided that the following conditions are met:

1. The fund promptly notifies the SEC that it is relying on Release 33817 and provides a description of the reasons why it needs to file a Form N-23C-2 fewer than 30 days in advance of the date set by the fund for calling or redeeming securities;
2. The filing on such abbreviated timeframe is permitted under relevant state law and the fund’s constituent documents; and
3. The fund files a notice that contains all of the information required by 1940 Act Rule 23c-2 prior to (i) any call or redemption of existing securities; (ii) the commencement of any offering of replacement securities; or (iii) providing notification to the existing shareholders whose securities are being called or redeemed.

Release 33817 further temporarily exempts registered investment companies from the requirements under Section 30(e) of the 1940 Act and Rule 30e-1 to transmit annual and semi-annual reports to investors for the period running from March 13, 2020 and June 15, 2020 if the registered fund is unable to prepare or transmit such reports due to circumstances related COVID-19 and it promptly notifies the SEC by email that it is relying on Release 33817 and provides a brief description of the reasons why it could not transmit its reports on a timely basis and the estimated date by which it expects to transmit its reports.  The registered fund must also include a statement on its public website that it is relying on Release 33817 and the reasons it is unable to prepare and transmit its reports on a timely basis.  Any registered funds relying on this exemptive relief must transmit the required reports to shareholders as soon as practicable, but not later than 45 days after the original due date, and will be required to file the report within 10 days of the report’s transmission to shareholders.

Finally, the SEC has stated that it would not pursue enforcement action against a registered fund that does not deliver its current prospectus to investors where timely delivery is not possible due to circumstances related to COVID-19 during the period running from March 13, 2020 until April 30, 2020, provided that an initial sale of shares to an investor will not be subject to this exemption. To rely on this exemptive relief, the registered fund must promptly notify the SEC that it is relying on this position and provide a brief description of why it could not meet the prospectus delivery requirements on a timely basis and provide the date by which it expects the prospectus to be delivered. It must also publish a statement on its website that it intends to rely on this position and briefly state that why it is not able to meet the prospectus delivery requirement and publish its current prospectus on its website.

As we have in the past, we will continue to monitor these issues and will provide future client updates. This QuickStudy is for guidance only and is not intended to be a substitute for specific legal advice. If you would like more information on the matters discussed here, please contact the authors.

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