Indiana Updates Its Policy on Investment Adviser Registration for Private Fund Managers

Recently, I posted a summary of the status of state investment advisor registration requirements for private fund managers in the Midwest in wake of adoption of the Dodd-Frank Act.  Indiana, in particular had a rather confusing situation.  Indiana’s Securities Division had issued a Statement of Policy in 2008 which had exempted certain private funds managers that (1) advised five or fewer funds, (2) didn’t hold themselves out to the public as an investment adviser, (3) met the federal 15 client exemption, and (4) provided advice to “venture capital companies” only, as such term was defined in the Statement of Policy.  Since the federal 15-client exemption was repealed in the Dodd-Frank Act, it was unclear where venture capital (and some private equity) fund managers located in Indiana stood with regards to state investment adviser registration requirements.

On August 29, 2011, the Indiana Securities Division addressed this ambiguity.  It issued a new Administrative Order, which exempted private fund managers who: (a) maintain a place of business in Indiana, (b) have not more than five clients that are residents in Indiana[1], (c) does not hold itself out generally to the public as an investment adviser, and (d) is exempt from registration under the Investment Advisers Act of 1940, by virtue of Section 203(l) and the regulations promulgated thereunder (a.k.a. federal venture capital exemption).  Therefore, if a private fund manager meets the requirements of the federal exemption for venture capital fund advisers, then in most cases it will meet Indiana’s exemption (unless it advises more than five funds).  The Administrative Order presents itself as an extension of the previous Statement of Policy; however, since the new federal definition of a “venture capital fund” differs from Indiana’s old definition of a “venture capital company,” it is possible that some fund managers who were exempt under Indiana’s old exemption would not be exempt under the new one (and vice versa).  It is also interesting to note that the Indiana Securities Division prefaces the new regulation with the phrase “Until such time as the Securities Commissioner adopts final rules on the regulation of private equity/venture capital funds and investment adviser registration…”  Therefore, it appears that the Indiana Securities Division views this exemption to be a temporary measure until a more comprehensive approach can be adopted.

As always, you should consult an attorney who is familiar with securities regulatory issues in assessing whether your particular fund management business is required to register under state law.


[1]  For fund managers, each fund is considered to be a client, rather than each investor in the fund.  So a fund manager that advises one fund that has 10 Indiana investors would still qualify for this element of the exemption.

© 2011 Alexander J. Davie — 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.




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Alexander J. Davie

Alexander J. Davie

Alexander Davie is a corporate and securities attorney based in Nashville, Tennessee. Businesses of many varieties rely on his counsel and judgment throughout all stages of their growth. In particular, fund managers and investment management professionals seek the expertise Alex gained when he served as general counsel to a private investment fund. Alex also has significant experience and enjoys working with companies and entrepreneurial ventures, especially within the technology industry. As a believer in technology's ability to enrich people's lives and allowing people to connect with each other in new ways, he is passionate about helping tech startups achieve success. He is active in Nashville's startup community as a mentor at the Nashville Entrepreneur Center and participates in numerous other events geared towards making Nashville a nationally ranked location for starting a business.

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