Exempt Reporting Adviser
An Exempt Reporting Adviser (ERA) is an investment adviser that is exempt from full SEC registration under the Investment Advisers Act of 1940 but is still required to file abbreviated reports with the SEC (Form ADV Part 1) because it advises private funds. The ERA exemption is available to advisers relying on the venture capital fund exemption or the private fund adviser exemption (managing less than $150 million in private fund assets in the U.S.).
Key takeaways
- ERAs file a limited version of Form ADV with the SEC but are not required to complete all sections required of registered investment advisers (RIAs).
- The private fund adviser exemption covers advisers whose U.S.-managed private fund assets total less than $150 million, regardless of the number of funds managed.
- ERAs are still subject to SEC examination authority, anti-fraud provisions under the Advisers Act, and state-level registration in some jurisdictions.
- Foreign private advisers with fewer than 15 U.S. clients and less than $25 million from U.S. persons are separately exempt and do not need to file as ERAs.
- The Dodd-Frank Act (2010) eliminated the private adviser exemption previously available to hedge funds with fewer than 15 clients, creating the ERA framework as a middle-ground category.
Explanation
Prior to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, hedge fund managers with fewer than 15 clients and not holding themselves out to the public could avoid SEC registration entirely under the private adviser exemption. Dodd-Frank eliminated this exemption, dramatically expanding the universe of investment advisers subject to SEC oversight. However, recognizing that full registration imposes significant compliance costs on smaller and specialized managers, Congress created the ERA framework as a lighter-touch regulatory category.
The two primary ERA exemptions are the private fund adviser exemption and the venture capital fund adviser exemption. The private fund adviser exemption is available to advisers that advise only private funds (as defined under the Investment Company Act) and have less than $150 million in regulatory assets under management (RAUM) attributable to private funds in the United States. The venture capital fund adviser exemption has no AUM cap but requires that the funds advised qualify as 'venture capital funds' under SEC rules—broadly defined as funds that do not use significant leverage and invest primarily in non-publicly traded equity securities of operating companies.
ERAs must file an abbreviated Form ADV with the SEC, including basic identifying information about the adviser, key executives, private funds managed, and ownership structure. Unlike full RIAs, ERAs are not required to complete the investment and business information sections of Form ADV, maintain a written compliance program, designate a chief compliance officer, or deliver a Form ADV brochure to clients. However, ERAs remain subject to the Advisers Act's anti-fraud provisions, meaning they cannot make materially false or misleading statements to investors or engage in deceitful practices—a critical baseline protection for fund investors.
State regulation adds another layer of complexity. Many states require ERA-status advisers to register with state securities regulators if they have clients in those states, even if they are exempt from federal registration. California, New York, and Texas, among other large states, have distinct ERA-equivalent filing requirements. The interplay between federal ERA status and state registration creates compliance complexity for managers with multi-state investor bases.
For emerging hedge fund managers, ERA status represents a significant cost saving compared to full SEC registration, which requires hiring a compliance officer, implementing a comprehensive compliance program, and undergoing periodic SEC examinations. As a fund grows toward the $150 million threshold, managers must carefully monitor RAUM and plan the transition to full RIA status—which typically requires 6–12 months of preparation to implement the required compliance infrastructure.
Example
A hedge fund manager based in New York launches two funds: a $60 million long/short equity fund and a $40 million credit fund, for a total of $100 million in U.S. private fund RAUM—below the $150 million ERA threshold. The manager files as an ERA, submitting a limited Form ADV Part 1 with the SEC. As the funds grow to a combined $155 million, the manager crosses the registration threshold and must convert to a full RIA within 90 days—requiring appointment of a chief compliance officer, adoption of a written compliance manual, implementation of a code of ethics, and preparation for potential SEC examination. The estimated annual compliance cost increase from ERA to RIA status is $150,000–$300,000 per year, primarily driven by personnel and legal costs.
Related terms
Cap Chief Compliance Officer Compliance Program Dodd Frank Act Equity Form Adv Hedge Exemption Hedge Fund Investment Advisers Act Kyc Know Your Customer Large Traders Leverage