Massachusetts Securities Division Adopts Final Private Fund Adviser Exemption Based Upon NASAA Model Rule

Previously, I reported that the Massachusetts Securities Division had proposed an exemption from investment adviser registration for advisers to private funds.  In late winter, the division adopted these regulations as final (with small changes).  They are, more or less, identical to the NASAA model rule and include the model rule’s grandfathering provisions.

As part of the rule, advisers to 3(c)(1) private funds (that are not venture capital funds) must, among other requirements, accept only qualified clients (as defined in SEC regulations) as investors.  However, under the grandfathering provision, an adviser to a 3(c)(1) private fund may have non-qualified clients as investors only if the fund ceased to accept non-qualified clients as of February 3, 2012.  (In the previous proposed rule, this date was March 30, 2012).

The new exemption takes effect August 3, 2012.  Prior to that, private fund managers can continue to make use of “institutional buyer” exemption, which exempts any adviser that only advises entities (i) whose investors are solely accredited investors each of which has invested a minimum of $50,000, (ii) existed prior to February 3, 2012, and (iii) ceased accepting new investors or new capital from existing investors after February 3, 2012.  If a fund manager does keep accepting new investments, then it must comply with the requirements of the new exemption.

Massachusetts joins several other states in adopting (or proposing to adopt) some form of the NASAA model rule, including California, Virginia, and Rhode Island.


© 2012 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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