While private fund advisers are often exempt from registering with the Securities and Exchange Commission (“SEC”) as an investment adviser due to certain exemptions under the Investment Advisers Act of 1940, private fund advisers must still often contend with state investment adviser registration requirements. These state registration requirements arise in two situations.
The first situation is where a fund adviser has less than $25 million in assets under management. In such instance, the fund adviser is not required to register with the SEC and is in fact prohibited from doing so. Given this outright exemption, a fund adviser with less than $25 million under management does not need to rely on the private fund adviser exemption (i.e. which covers advisers that only advise private funds and have assets under management of less than $150 million) or the venture capital fund adviser exemption, which means that it is not considered an “exempt reporting adviser” and is not required by federal law to file a truncated Form ADV. However, if the state in which the fund adviser’s office is located does require it to register as an investment adviser with the state’s securities commissioner, then it will need to do so. If the state does not require it to register, then it will not need to register with either the SEC or the state, nor will it need to file a truncated Form ADV.
The second situation in which the state registration requirement arises is where the fund adviser has $25 million or more under management but is otherwise exempt under the private fund adviser exemption or the venture capital fund adviser exemption. In this instance, if the state does not require the fund adviser to register, then it will be required to file a truncated Form ADV with the SEC as an exempt reporting adviser, but no registration will be required. If the state does require the fund adviser to register, then it must register with the state’s securities commissioner and may also be required to file a truncated Form ADV with the SEC as an exempt reporting adviser if the private fund adviser has assets under management of $110 million or more. State-registered investment advisers that have assets under management of less than $110 million are exempt from registration with the SEC under the “mid-size adviser” exemption and thus do not need to rely on the private fund adviser exemption or the venture capital fund adviser exemption. However, state-registered advisers in New York may not take advantage of the mid-size adviser exemption and therefore must become an exempt reporting advisers when their assets under management exceed $25 million.
If a fund adviser is required to register with the SEC, then it does not need to register with any state because the federal registration requirements preempt the state registration requirements. However, many states require notice filings from SEC-registered investment advisers (usually called “federal covered advisers”) doing business in those states, which takes the form of filing a copy of Form ADV with the state securities commissioner and paying a filing fee. The requirement of a federal covered adviser to make a notice filing with the state securities commissioner is often independent of the exemptions from state investment adviser registration. Therefore, a fund adviser may qualify for a state exemption, but because it must register with the SEC, it is a federal covered adviser and must make a notice filing. A few states do grant the same exemption from notice requirements of federal covered advisers as they do to non-SEC registered investment advisers; thus, if a federal covered adviser also qualifies for an exemption from state registration, no notice filing is required in those states.
The NASAA Model Rule
Many states have adopted the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule or a variation thereof. The model rule provides for an exemption from registration for “private fund advisers”, which is any investment adviser who provides advice solely to one or more private funds (i.e. a 3(c)(1) fund or a 3(c)(7) fund). A private fund adviser must not be subject to disqualification from prior bad acts such as fraud or other securities law violations. The private fund adviser must also make the same Form ADV filings as an exempt reporting adviser would and pay a fee to the state’s securities commissioner.
Any private fund adviser that advises one or more 3(c)(1) funds (other than venture capital funds, as defined under federal regulations) must also comply with additional restrictions. All investors in these funds must be qualified clients. The fund adviser must also disclose in writing all services that are provided to individual owners (if any), all duties owed to individual owners (if any), and any other material information affecting the rights or responsibilities of owners. Finally, the fund adviser must provide audited financial statements to each investor.
If a fund adviser is registered with the SEC, the adviser is not eligible to use the exemption in the model rule and must comply with the state’s notice filing requirements applicable to federal covered investment advisers.
Summary Chart
The chart below summarizes the situation, including how fund advisers would be treated in states where the NASAA model rule is in place:
| Assets under Management | Not exempt from state registration | Exempt from state registration (other than from NASAA model rule) | Exempt from state registration due to NASAA model rule |
|---|---|---|---|
| Under $25 million | Register with state only | No registration required with SEC or state | Exempt reporting adviser – file truncated Form ADV with state only |
| $25 million or more, but exempt from SEC registration | Register with state; and if AUM > $110 million ($25 million if adviser is in NY), fund adviser is also an exempt reporting adviser – file truncated Form ADV with SEC | Exempt reporting adviser – file truncated Form ADV with SEC only | Exempt reporting adviser – file truncated Form ADV with state and SEC |
| $25 million or more, but not exempt from SEC registration | Register with SEC only; Notice filing with state required | Register with SEC only; Notice filing with state may be required | Register with SEC only; Notice filing with state required |
State by State Investment Adviser Registration Summaries
Summarized below are the rules as they exist as of the dates indicated in each of the fifty states and the District of Columbia. Given the very fact-specific nature of these issues, you should consult a qualified attorney in making the determination of whether you are required to register as an investment adviser.
| State | Summary |
|---|---|
| Alabama | There is no exemption from registration for private fund advisers. A private fund adviser with a place of business in the state of Alabama must register with the Alabama Securities Commission unless it is registered with the SEC. Last updated: April 14, 2016 |
| Alaska | There is no exemption from registration for private fund advisers. A private fund adviser with a place of business in the state of Alaska must register with the Alaska Division of Banking and Securities unless it is registered with the SEC. Last updated: April 25, 2016 |
| Arizona | Arizona has, by statute, implemented a heavily modified version of the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at Ariz. Rev. Stat. § 44-3152). The following is a broad summary of the material modifications:
|
| Arkansas | There is no exemption from registration for private fund advisers. Generally, a private fund adviser with a place of business in the state of Arkansas must register with the Arkansas Securities Department unless it is registered with the SEC. However, it may be possible for a fund adviser to request a no-action letter from the Arkansas Securities Department, which would give a particular fund adviser an exemption (an example can be found here.) Last updated: April 15, 2016 |
| California | California has implemented a modified version of the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at Cal. Code Regs. tit. 10, § 260.204.9). The most significant modification to the model rule is that the definition of a venture capital fund is broader in the California rule. The model rule relies on the federal definition of “venture capital fund.” In contrast, the California rule allows a fund to qualify as a “venture capital company” if it qualifies for any of the following: (1) a venture capital fund under federal securities laws; (2) a “venture capital operating company” (aka a “VCOC”) under federal ERISA regulations; or (3) California’s previous definition of the term. As in the model rule, if a fund adviser does not advise anyone other than a venture capital company, then many of the conditions of the rule, such as the requirement that any owner of the fund charged a performance fee be a qualified client or that the fund gets audited, do not apply. Last updated: March 3, 2016 |
| Colorado | Colorado has implemented the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at 3 Colo. Code Regs. § 704-1:51-4.11(IA)). Last updated: February 27, 2022 |
| Connecticut | An Order dated July 11, 2011 by the Connecticut Commissioner of Banking exempts from investment adviser registration any fund adviser who meets the federal venture capital fund exemption or the federal private fund adviser exemption (which exempts investment advisers who solely advise private funds and have assets under management of less than $150 million). The order also requires such fund advisers to submit a copy of the truncated Form ADV that they are required to file with the SEC as “exempt reporting advisers” to the Connecticut Commissioner of Banking. Last updated: April 28, 2016 |
| Delaware | Delaware has implemented a modified version of the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at 6 Del. Admin. Code § SEC 711). The model rule has been modified to apply only to private fund advisers who solely advise 3(c)(7) funds. A 3(c)(7) fund is a fund that that only accepts qualified purchasers, as defined in the Investment Company Act of 1940. This means that advisers of 3(c)(1) funds (i.e., funds in which the investors need only be accredited investors) would not be exempt and if the fund adviser has a place of business in the state of Delaware, it must register with the Delaware Division of Securities unless it is registered with the SEC. Last updated: March 31, 2016 |
| District of Columbia | By an order dated January 28, 2016, the District of Columbia Department of Insurance, Securities and Banking has exempted private fund advisers that qualify as venture capital fund advisers under Section 203(l) of the federal Investment Advisers Act of 1940. In addition, by an order dated June 10, 2016, the Department also exempted fund advisers that have less than $150 million of assets under management and are in compliance with Section 203(m) of the federal Investment Advisers Act of 1940. In each case, an exempt private fund adviser is required to make a notice filing with the District of Columbia Department of Insurance, Securities and Banking. Last updated: March 26, 2023 |
| Florida | Fla. Stat. § 517.021(14)(b)(7) excludes from the definition of investment adviser “[a]ny person who does not hold herself or himself out to the general public as an investment adviser and has no more than 15 clients within 12 consecutive months in [Florida].” Therefore, Florida has retained the equivalent of the 15 client exemption that used to be in place in the federal Investment Adviser Act of 1940. Under widely-accepted principles of federal and state securities law, each fund is considered a client (not each investor), so most private fund advisers would be exempt from registration in Florida. Last updated: March 31, 2016 |
| Georgia | Ga. Comp. R & Regs. § 590-4-4-.13(1)(b) exempts from investment adviser registration “[a]ny investment adviser or federal covered investment adviser who during the course of the preceding 12 months has had fewer than six clients in [Georgia].” Since each fund is considered a client (not each investor), most private fund advisers would be exempt from registration in Georgia (see Ga. Comp. R. & Regs. 590-4-4-.13(2)). Last updated: March 31, 2016 |
| Hawaii | There is no exemption from registration for private fund advisers. A private fund adviser with a place of business in the state of Hawaii must register with the Hawaii Commissioner of Securities unless it is registered with the SEC. Last updated: April 15, 2016 |
| Idaho | There is no exemption from registration for private fund advisers. Generally, a private fund adviser with a place of business in the state of Idaho must register with the Idaho Department of Finance unless it is registered with the SEC. The Department has stated to us that certain venture capital fund advisers rely on a no-action letter that can be found here. However, it would probably be advisable for any fund adviser to request a no-action letter from the Idaho Department of Finance for its own individual situation. Last updated: April 18, 2016 |
| Illinois | Ill. Admin. Code tit. 14, § 130.805(b) exempts from registration “any investment adviser or federal covered investment adviser who during the immediately preceding twelve consecutive months has not had more than five clients in [Illinois]…” Under widely-accepted principles of federal and state securities law, each fund is considered a client (not each investor), so most private fund advisers would be exempt from registration in Illinois. Last updated: April 1, 2016 |
| Indiana | By an Administrative Order dated January 9, 2012, Indiana has implemented a modified version of the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule, which exempts from registration any person that: “(a) maintains a place of business in Indiana; (b) has had during the preceding twelve (12) months, not more than five (5) clients that are residents in Indiana; (c) does not hold itself out generally to the public as an investment adviser; (d) advises a qualifying private fund (as defined in [SEC Rule 203(m)-1]) so long as neither the fund adviser nor any of its advisory affiliates are subject to disqualification [under Regulation A].” Under widely-accepted principles of federal and state securities law, each fund is considered a client (not each investor). Thus the Order effectively limits fund advisers that would otherwise be exempt under the Federal Private Fund Adviser Exemption or Venture Capital Adviser Exemption to advising 5 funds or less. The Order also puts certain restrictions on 3(c)(1) funds that are not venture capital funds under the Federal Definition (akin to those placed on such funds in the NASAA Model Rule), namely: (a) each beneficial owner must have been an accredited investor at the time of purchase; (b) at the time of purchase, each beneficial owner received the disclosures regarding the following: (1) all services, if any, to be provided to individual beneficial owners, (2) all duties, if any, the investment adviser owes to the beneficial owners, and (3) any other material information affecting the rights or responsibilities of the beneficial owners; and (c) the fund must be audited annually and the audited financial statements must be delivered to each owner. Last updated: February 27, 2022 |
| Iowa | Iowa has implemented the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at Iowa Admin. Code r. 191-50.45(502)). Last updated: March 3, 2016 |
| Kansas | K.A.R. § 81-14-11 exempts from investment adviser registration any investment adviser that (a) maintains its principal place of business in Kansas; (b) provides investment advice solely to fewer than 15 clients; (c) does not hold itself out generally to the public as an investment adviser; (d) does not act as an investment adviser to a registered investment company or business development company; and (e) neither it nor its affiliates and associated investment adviser representatives are subject to disqualification under Regulation A. Under widely-accepted principles of federal and state securities law (which appear consistent with no-action guidance from the Kansas Securities Commissioner issued in 2008), each fund is considered a client (not each investor), so most private fund advisers would be exempt from registration in Kansas. Investment advisers that qualify with assets under management of $25 million or less must make a notice filing with the Kansas Securities Commissioner. Last updated: April 1, 2016 |
| Kentucky | By an order dated August 12, 2020, the Kentucky Department of Financial Institutions has exempted private fund advisers that exclusively advise 3(c)(7) funds. Last updated: March 26, 2023 |
| Louisiana | La. Stat. Ann. § 51:702(7)(f) excludes from the definition of investment adviser “[a] person… who during any period of twelve consecutive months, has had fewer than fifteen clients in [Louisiana] and who does not hold himself or herself out generally to the public as an investment adviser.” However, unlike most states, Louisiana takes the position that each investor in Louisiana counts toward the 15-client threshold, so private fund advisers with over 15 investors in Louisiana should look to Louisiana’s other exemption for private fund advisers. In addition, the Louisiana Office of Financial Institutions has, by order, adopted the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (see the Order located here). However, in its Order the Louisiana regulators did not change the definitional exclusions of “Investment Adviser” set forth in La. Stat. Ann. § 51:702(7)(f). Last updated: March 23, 2023 |
| Maine | By an Order dated February 16, 2012, the Maine Office of Securities has implemented a modified version of the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule. The model rule is modified as follows: (a) the investment adviser must maintain a place of business in the State of Maine and (b) it must not hold itself out generally to the public as an investment adviser. Last updated: April 1, 2016 |
| Maryland | By an Order dated June 15, 2012, the Maryland Securities Commissioner has implemented a modified version of the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule. The model rule has been modified as follows: (1) the bad actor exclusions refer to Regulation A rather than Regulation D and (2) it requires that advisers to 3(c)(1) funds that are not venture capital funds must deliver annual audited financial statements to each owner of a 3(c)(1) fund within 120 days after the end of the fund’s fiscal year (the model rule contained no time limit). Last updated: February 27, 2022 |
| Massachusetts | Massachusetts has implemented the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at 950 Mass. Code Regs. 12.205(2)(c)). Last updated: April 4, 2016 |
| Michigan | Michigan has implemented the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at Mich. Admin. Code R. 451.4.5). However, the model rule has been modified as follows: 1. Investor Eligibility: Michigan’s Rule 4.5(4)(a) allows private fund advisers to include investors that are either accredited investors or qualified clients in 3(c)(1) funds that are not venture capital funds. In contrast, the NASAA Model Rule only allows private fund advisers to advise such funds to be beneficially owned by persons who meet the definition of a qualified client. 2. Audit Requirement Exemption: Michigan’s Rule 4.5(4)(d) provides an exemption from the audit requirement for 3(c)(1) funds that are not venture capital funds if all beneficial owners are qualified clients and the private fund adviser has provided a written disclosure to each beneficial owner explaining that the private fund will not provide audited financial statements to investors annually, but that other similarly-situated funds may provide audited financial statements to their investors. Last updated: March 23, 2023 |
| Minnesota | Minnesota has, by statute, implemented the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at Minn. Stat. Ann. § 80A.58). Last updated: April 4, 2016 |
| Mississippi | There is no exemption from registration for private fund advisers. A private fund adviser with a place of business in the state of Mississippi must register with the Mississippi Securities Division unless it is registered with the SEC. Last updated: April 14, 2016 |
| Missouri | Missouri has implemented a modified version of the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at Mo. Code Regs. tit. 15, § 30-51.180(6)). The model rule has been modified so that in order to qualify for the exemption, each beneficial owner of a 3(c)(1) fund that the fund adviser advises must be either a qualified client or qualify as an accredited investor under any of the tests listed in Rule 501 except the annual income test. (The model rule requires each beneficial owner to be a qualified client; being an accredited investor is not sufficient). Last updated: April 4, 2016 |
| Montana | There is no exemption from registration for private fund advisers. A private fund adviser with a place of business in the state of Montana must register with the Montana Commissioner of Securities and Insurance unless it is registered with the SEC. Last updated: April 28, 2016 |
| Nebraska | Nebraska has implemented a modified version of the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at 48 Neb. Admin. Code Ch. 42, 001). Rather than exempting private fund advisers from investment adviser registration requirements, as the NASAA Model Rule does, the Nebraska regulation excludes private fund advisers from the definition of investment adviser, thus rendering them not subject to investment adviser registration and other requirements. In addition, the Nebraska rule does not require that the private fund adviser pay a fee with its report. Last updated: May 14, 2022 |
| Nevada | Nevada has, by statute, implemented the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at Nev. Rev. Stat. § 90.345). Last updated: March 23, 2023 |
| New Hampshire | There is no exemption from registration for private fund advisers. A private fund adviser with a place of business in the state of New Hampshire must register with the New Hampshire Bureau of Securities Regulation unless it is registered with the SEC. Last updated: April 15, 2016 |
| New Jersey | N.J. Stat. Ann. § 49:3-56(g)(1) exempts from investment adviser registration any person that “has a place of business in [New Jersey] and during any period of 12 consecutive months that person does not have more than five clients, who are residents of [New Jersey].” Under widely-accepted principles of federal and state securities law (which appear consistent with no-action guidance from the New Jersey Bureau of Securities issued in 1993 and 1994), each fund is considered a client (not each investor), so most private fund advisers would be exempt from registration in New Jersey. Last updated: April 5, 2016 |
| New Mexico | By an Order dated December 2, 2013, the New Mexico Securities Division has implemented the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule. Last updated: April 6, 2016 |
| New York | N.Y. Gen. Bus. Law § 359-eee(a)(5) and N.Y. Comp. Codes R. & Regs. tit. 13, § 11.13(a)(5) excludes from the definition of “investment adviser” a person that has “sold, during the preceding twelve month period, investment advisory services to fewer than six persons residing in [the state of New York] exclusive of financial institutions and institutional buyers.” Under N.Y. Comp. Codes R. & Regs. tit. 13, § 11.12(a)(2), an entity that receives investment advice based on its investment objectives rather than the individual investment objectives of its owners is deemed to be a single person, so that a private fund adviser managing less than 6 funds would typically be exempt. In addition, the definition of institutional buyer, which includes any entity “not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $ 10,000,000” will also have the effect of excluding many private funds from the count. (see N.Y. Comp. Codes R. & Regs. tit. 13, § 11.12(e)(9)). Last updated: March 27, 2023 |
| North Carolina | N.C. Gen. Stat. Ann. § 78C-16(a)(4) exempts from investment adviser registration any person that “during the course of the preceding 12 months, has had fewer than 15 clients, and neither holds himself or herself out generally to the public as an investment adviser nor acts as an investment adviser to any investment company registered under the Investment Company Act of 1940, or a company that has elected to be a business development company pursuant to section 54 of the Investment Company Act of 1940.” Under widely-accepted principles of federal and state securities law, each fund is considered a client (not each investor), so most private fund advisers would be exempt from registration in North Carolina. Last updated: April 6, 2016 |
| North Dakota | There is no exemption from registration for private fund advisers. A private fund adviser with a place of business in the state of North Dakota must register with the North Dakota Securities Department unless it is registered with the SEC. Last updated: April 14, 2016 |
| Ohio | Ohio Admin. Code § 1301:6-3-01(L) exempts from the definition of the term “investment adviser” any person who “during the course of the preceding twelve months: (a) [h]as had fewer than fifteen clients; (b) [d]oes not hold himself out generally to the public as an investment adviser; and (c) [h]as clients consisting solely of… “[a]ccredited investors” as defined in… Regulation D…” Under widely-accepted principles of federal and state securities law (which appear consistent with Ohio Admin. Code § 1301:6-3-01), each fund is considered a client (not each investor), so most private fund advisers would be exempt from registration in Ohio. Last updated: April 6, 2016 |
| Oklahoma | Oklahoma has implemented a modified version of the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at Okla. Admin. Code § 660:11-7-17). The model rule is modified as follows: (a) it is limited to private fund advisers that have assets under management in the United States of less than $150,000,000 and (b) it places no additional restrictions or conditions on a private fund adviser of a 3(c)(1) fund (as the model rule does). Last updated: April 8, 2016 |
| Oregon | Or. Admin. R. 441-175-0030(1) exempts from the definition of the term “state investment adviser” any person who “conducts no public advertising or general solicitation in [Oregon] and whose only clients in [Oregon] are “accredited investors” as that term is defined in [Oregon’s administrative rules].” Oregon’s definition of “accredited investor” is substantially the same as the one contained in federal Regulation D and most private funds would qualify as an “accredited investor” under either standard. Therefore, most fund advisers would be excluded from the definition of the term “state investment adviser” and would not need to register. It is unclear if the use of general solicitation by a fund under Rule 506(c) would cause the investment adviser to be required to register in Oregon. Last updated: April 8, 2016 |
| Pennsylvania | 70 P.S. § 1-102(j)(vii) excludes from the definition of investment adviser any person that “has a place of business in [Pennsylvania] and during the preceding twelve-month period has had not more than five clients in or out of [Pennsylvania] and does not hold himself out generally to the public as an investment adviser.” Since each fund is considered a client (not each investor), most fund advisers would be exempt from registration in Pennsylvania (see 10 Pa. Code § 609.012(a)(4)). In addition, 10 Pa. Code § 302.070 implements a modified version of the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule. The model rule has been modified so that the bad actor exclusions refer to Regulation A rather than Regulation D. Last updated: March 7, 2022 |
| Rhode Island | Rhode Island has implemented the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at R.I. Admin Code 11-7-1:4, Rule 204(3)-3). Last updated: April 14, 2016 |
| South Carolina | South Carolina has, by order from the Office of Attorney General, implemented a modified version of the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule. The model rule is modified as follows: 1. Instead of limiting 3(c)(1) funds that are not venture capital funds to qualified clients, investors in such funds must be either (a) accredited investors, (b) qualified purchasers, or (c) persons who have acquired the fund interests by gift, bequest, or pursuant to an agreement related to a legal separation or divorce. 2. Advisers to 3(c)(1) funds that are not venture capital funds must deliver annual audited financial statements to each owner of a 3(c)(1) fund within 120 days (150 days for funds of funds) after the end of the fund’s fiscal year. The model rule contained no time limit. In addition, if a 3(c)(1) fund that is not a venture capital fund begins operations more than 180 days into a fiscal year, the private fund adviser need not obtain an audit for that initial fiscal year, if the audit for the fiscal year immediately succeeding this period is supplemented by, or includes, an audit of the initial fiscal year. 3. For any 3(c)(1) funds that are not venture capital funds where a performance fee or carried interest is charged, each investor must either be a qualified client or the the private fund adviser must disclose in writing all material information concerning the proposed fee arrangement, including the following: (a) the fee arrangement may create an incentive for the private fund adviser to make investments that are riskier or more speculative than would be the case in the absence of a performance fee; (b) where relevant, that the private fund adviser may receive increased compensation with regard to unrealized appreciation as well as realized gains in the investor’s account; (c) the periods that will be used to measure investment performance throughout the contract and their significance in the computation of the fee; (d) the nature of any index that will be used as a comparative measure of investment performance, the significance of the index, and the reason the private fund adviser believes that the index is appropriate; and (e) where the private fund adviser’s compensation is based in part on the unrealized appreciation of securities for which market quotations are not readily available, how the securities will be valued and the extent to which the valuation will be independently determined. 4. Private fund advisers that manage funds aggregating less than $25 million in assets under management are not required to file Form ADV with the State of South Carolina nor pay any filing fee. In addition, such private fund advisers are also exempt from the financial audit requirement. Last updated: April 30, 2022 |
| South Dakota | S.D. Admin. R. § 20:08:05:15(2) provides that an investment adviser that meets the exemption requirements as set forth in Sections 203(b), 203(l), or 203(m) of the Investment Advisers Act of 1940 as amended, is also exempt from South Dakota’s investment adviser registration requirement. Therefore, if an investment adviser is a private fund adviser that is exempt from registration as a result of the private fund adviser exemption or venture capital exemption, it is also exempt from registration with the South Dakota Division of Securities. Last updated: April 20, 2016 |
| Tennessee | Tenn. Admin Reg. 0780-04-03-.05(1)(b) exempts “[a]ny person domiciled in [Tennessee] who, during the course of the preceding twelve (12) months, has had fewer than fifteen (15) clients and who neither holds himself out generally to the public as an investment adviser nor acts as an investment adviser to any investment company registered under the Investment Company Act.” Since each fund is considered a client (not each investor), most fund advisers would be exempt from registration in Tennessee (see Tenn. Admin Reg. 0780-04-03-.12(2)(b)(1)). Last updated: April 16, 2016 |
| Texas | Texas has implemented a modified version of the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at 7 Tex. Admin. Code § 139.23). The model rule is modified as follows: (a) it allows an adviser to use the exemption even if it is subject to a disqualification event if it is registered in the state in which the disqualification event was entered or if the authority that entered the disqualification event waives the disqualification upon a showing of good cause; (b) it does not subject non-venture capital 3(c)(1) funds that are private equity funds or real estate funds (as defined in the instructions to Form ADV) to any of the additional conditions set forth in the model rule; (c) it does not subject non-venture capital 3(c)(1) funds to the additional disclosure obligations set forth in the model rule; and (d) in lieu of the requirement to obtain audited financials, 3(c)(1) funds that are not venture capital funds, private equity funds, or real estate funds must comply with the custody of client funds and securities rules applicable to registered investment advisers in Texas. Texas’s investment adviser client custody rules require an adviser with custody of client funds or securities (which an adviser to a 3(c)(1) fund that is not a venture capital fund, private equity fund, or real estate fund would be) to, among other requirements, have a qualified custodian provide quarterly statements to each limited partner and have an independent accountant verify the funds or securities once per year by surprise examination. However, a private fund adviser that has the fund audited and provides such audit to the limited partners within 120 days after the end of a fiscal year does not need to comply with the requirement to provide statements from a qualified custodian or subject itself to a surprise examination from an independent accountant. Last updated: April 16, 2016 |
| Utah | Utah Admin. Code. R. 164-4-9(C) and (D) contain exemptions that may be helpful to certain private fund advisers. Utah Admin. Code. R. 164-4-9(C) exempts an investment adviser from registration if it services only the following investors: (1) certain categories of accredited investors, including an entity with total assets in excess of $5,000,000, (2) a qualified institutional buyer (i.e., an entity that owns and invests assets of at least $100,000,000 in unaffiliated securities), or (3) an entity with a net worth of $10,000,000 or more. Utah Admin. Code. R. 164-4-9(D) exempts an investment adviser from registration if it services only private funds that meet the following requirements: (a) investors cannot redeem their interests within 2 years of their purchase; (b) each time the private fund makes an investment, 80% of the fair market value of the investments made must be in an entity that is not publicly traded and which the private fund (alone or with other private funds) has the ability to direct or cause the direction of the management and policies of the entity, has access to the business and corporate records of the entity, and has the ability to elect directors to the entity’s board (either outright or upon certain contingencies); (c) each time the private fund makes an investment, 80% of the fair market value of the investments made must be in investments that have 2 of the following 4 characteristics: (1) the investment is a direct or indirect equity stake (convertible equity or notes are permitted); (2) the investors are granted registration rights; (3) the investors receive co-sale rights, liquidation preferences, or redemption rights; and (4) the investors receive anti-dilution rights, rights of first offer/participation rights (a.k.a. preemptive rights), the right to consent to the issuance of new equity, or the right to block a liquidity event. This exemption is clearly aimed at venture capital funds, though it may be helpful to private equity funds as well.Last updated: April 21, 2016 |
| Vermont | By an Order dated November 2, 2012, the Vermont Commissioner of Financial Regulation has implemented a modified version of the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule. The model rule has been modified to require that advisers to 3(c)(1) funds that are not venture capital funds must deliver annual audited financial statements to each owner of a 3(c)(1) fund within 180 days after the end of the fund’s fiscal year or such longer period as the Vermont Commissioner of Financial Regulation permits upon a showing of good cause (the model rule contained no time limit). Last updated: April 16, 2016 |
| Virginia | Virginia has implemented the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at 21 Va. Admin. Code § 5-80-215). Last updated: April 16, 2016 |
| Washington | Washington has implemented a modified version of the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at Wash. Admin. Code §§ 460-24A-071 and 460-24A-072). The model rule has been modified to apply only to private fund advisers who solely advise 3(c)(7) funds or venture capital funds as defined in federal regulations. A 3(c)(7) fund is a fund that that only accepts qualified purchasers, as defined in the Investment Company Act of 1940. This means that fund advisers of 3(c)(1) funds (i.e., funds in which the investors need only be accredited investors as opposed to qualified purchasers) that are not venture capital funds would not be exempt and if the fund adviser has a place of business in the state of Washington, it must register with the Washington Division of Securities unless it is registered with the SEC. Last updated: April 16, 2016 |
| West Virginia | There is no exemption from registration for private fund advisers. A private fund adviser with a place of business in the state of West Virginia must register with the West Virginia Securities Commission unless it is registered with the SEC. Last updated: April 28, 2016 |
| Wisconsin | By an Order dated February 17, 2012, the Wisconsin Department of Financial Institutions has implemented the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule. In addition, a private fund adviser may be able use the exemption contained in Wis. Stat. § 551.403(2)(a)(2m), which exempts from investment adviser registration any person whose only clients in Wisconsin are certain categories of accredited investors under federal Regulation D. One of the applicable categories of accredited investor is any entity with total assets in excess of $5,000,000. Last updated: April 21, 2016 |
| Wyoming | Wyoming has implemented the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule (found at 002-10 Wyo. Code R. § 10-4). Last updated: May 15, 2022 |
This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.