Guide to State Investment Adviser Registration Exemptions for Private Fund Advisers

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.[1]  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 and Wyoming 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.[2]  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 ManagementNot exempt from state registrationExempt from state registration (other than from NASAA model rule)Exempt from state registration due to NASAA model rule
Under $25 millionRegister with state onlyNo registration required with SEC or stateExempt reporting adviser – file truncated Form ADV with state only
$25 million or more, but exempt from SEC registrationRegister with state; and if AUM > $110 million ($25 million if adviser is in NY or WY), fund adviser is also an exempt reporting adviser – file truncated Form ADV with SECExempt reporting adviser – file truncated Form ADV with SEC onlyExempt reporting adviser – file truncated Form ADV with state and SEC
$25 million or more, but not exempt from SEC registrationRegister 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.

AlabamaThere 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
AlaskaThere 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
ArizonaThere is currently no exemption from registration for private fund advisers.  A private fund adviser with a place of business in the state of Arizona must register with the Arizona Securities Division unless it is registered with the SEC. However, effective August 31, 2016, Arizona has, by statute, implemented a heavily modified version of the NASAA Registration Exemption for Investment Advisers to Private Funds Model Rule. The model rule is modified in the following ways:

  1. The provisions that normally apply only to a fund that meets the federal definition of “venture capital fund” also apply to funds that qualify as a”venture capital operating company” (aka a “VCOC”) under federal ERISA regulations or that meet an Arizona-specific test (which is essentially a simplified version of the test to determine whether a fund is a VCOC).
  2. Advisers to venture capital funds do not need to file a truncated Form ADV with the Arizona Securities Division (though they would still need to file it with the SEC as an exempt reporting adviser).
  3. 3(c)(1) funds that are not venture capital funds are not required to be sold solely to qualified clients (just accredited investors).
  4. Certain 3(c)(1) funds that qualify as “limited retail buyer funds” will not be required to be audited if all of the limited partners waive the audit requirement each year. A “limited retail buyer fund” is limited to 15 purchasers who are qualified clients. In addition, the fund adviser cannot hold itself out to the public as an investment adviser and the interests in the fund cannot be sold by general solicitation.
  5. Investment advisers exempted under the rule must still comply with Arizona’s rules related to custody of client funds or securities.

Last updated: March 3, 2016

ArkansasThere 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
CaliforniaCalifornia 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
ColoradoAn Order dated March 30, 2012 by the Colorado Securities Commissioner exempts from investment adviser registration any fund adviser who acts as an investment adviser solely to one or more venture capital funds, as defined in the federal regulations. The exemption is not available to advisers of private funds that do not meet the federal definition of a venture capital fund.
Last updated: April 28, 2016
ConnecticutAn 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
DelawareDelaware 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 ColumbiaBy an order dated January 28, 2016, the District of Columbia Department of Insurance, Securities and Banking has exempted fund advisers that qualify as venture capital fund advisers under Section 203(l) of the federal Investment Advisers Act of 1940. An exempt venture capital fund adviser is required to make a notice filing with the District of Columbia Department of Insurance, Securities and Banking. There is no exemption for other private fund advisers.  Therefore, a private fund adviser that is not a venture capital fund adviser with a place of business in the District of Columbia must register with the District of Columbia Department of Insurance, Securities and Banking.
Last updated: March 31, 2016
FloridaFla. 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
GeorgiaGa. 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
HawaiiThere 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
IdahoThere 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
IllinoisIll. 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
IndianaBy 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 clients that are residents in Indiana, (c) does not hold itself out generally to the public as an investment adviser, and (d) advises a qualifying private fund [as defined in SEC Rule 203(m)-1.]” Under widely-accepted principles of federal and state securities law, each fund is considered a client (not each investor). The definition of “qualifying private fund” is based on one used in the federal private fund adviser exemption, which means that the exemption is limited to advisers with less than $150 million in assets under management. It appears that venture capital funds with assets under management of over $150 million would be required to register (in contrast to the federal rule). The Order puts certain restrictions on 3(c)(1) funds that are not venture capital funds (akin to those placed on such funds in the NASAA Model Rule), namely: (x) each owner must have been an accredited investor at the time of purchase; (y) certain disclosures must have been made to the owner at the time of purchase; and (z) the fund must be audited annually and the audited financial statements must be delivered to each owner.
Last updated: April 1, 2016
IowaIowa 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
KansasK.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
KentuckyThere is no exemption from registration for private fund advisers. A private fund adviser with a place of business in the state of Kentucky must register with the Kentucky Securities Division unless it is registered with the SEC.
Last updated: April 11, 2016
LouisianaLa. 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.” 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 Louisiana.
Last updated: April 1, 2016
MaineBy 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
MarylandBy 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 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 120 days after the end of the fund’s fiscal year (the model rule contained no time limit).
Last updated: April 1, 2016
MassachusettsMassachusetts 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
MichiganMich. Comp Laws § 451.2403(c) exempts from investment adviser registration a person that does not hold itself out to the general public as an investment adviser and whose clients are limited to certain categories, one of which is “institutional investors.”  Under a SIXTH TRANSITION ORDER ADMINISTERING THE MICHIGAN UNIFORM SECURITIES ACT (2002), 2008 PA 551, the Michigan Office of Financial and Insurance Regulation included within the definition of “institutional investor” any client who meets the definition of a “private fund” under the Investment Advisers Act of 1940, as amended, as long as all owners of the private fund are either accredited investors or qualified clients.  Therefore, most private fund advisers are exempt from registration.
Last updated: April 4, 2016
MinnesotaMinnesota 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
MississippiThere 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
MissouriMissouri 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
MontanaThere 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
NebraskaEffective May 11, 2016, 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: August 26, 2016
NevadaNev. Rev. Stat. § 90.340 exempts from investment adviser registration “[a]n investment adviser who is registered or is not required to be registered as an investment adviser under the Investment Advisers Act of 1940 [if]… [i]ts only clients in [Nevada] are other investment advisers, broker-dealers or financial or institutional investors…” Nev. Rev. Stat. § 90.240 defines the term “financial or institutional investor” to include “any other institutional buyer.” Nev. Admin. Code § 90.088 interprets “institutional buyer” to include any accredited investor. Since a private fund typically qualifies as an accredited investor, most private fund advisers would be exempt from registration in Nevada.
Last updated: April 5, 2016
New HampshireThere 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 JerseyN.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 MexicoBy 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 YorkN.Y. Gen. Bus. Law § 359-eee(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].” Since each fund is considered a client (not each investor), most private fund advisers would be exempt from registration in New York (see N.Y. Comp. Codes R. & Regs. tit. 13, § 11.12(a)(2)).
Last updated: April 6, 2016
North CarolinaN.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 DakotaThere 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
OhioOhio 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
OklahomaOklahoma 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
OregonOr. 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
Pennsylvania70 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)).
Last updated: April 8, 2016
Rhode IslandRhode 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 CarolinaThere is no exemption from registration for private fund advisers. A private fund adviser with a place of business in the state of South Carolina must register with the South Carolina Attorney General unless it is registered with the SEC.
Last updated: April 26, 2016
South DakotaS.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
TennesseeTenn. 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
TexasTexas 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 ifself to a surprise examination from an independent accountant.
Last updated: April 16, 2016
UtahUtah 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

VermontBy 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
VirginiaVirginia 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
WashingtonWashington 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 purchesers) 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 VirginiaThere 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
WisconsinBy 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
WyomingWyoming is unique among the 50 states in that it has no statute regulating investment advisers.  As a result, all investment advisers in Wyoming are regulated on the federal level and there is no exemption from federal registration for investment advisers in Wyoming with assets under management of less than $25 million.  Of course, private fund advisers in Wyoming may still take advantage of any other exemption available on the federal level, such as the venture capital exemption and private fund adviser exemption (i.e., the fund adviser manages under $150 million). This situation will change on July 1, 2017, when a new version of Wyoming’s Uniform Securities Act takes effect. The new statute does not appear to contain any exemption for private fund advisers but such an exemption may be enacted by regulation by the Wyoming Secretary of State at a future time.
Last updated: April 16, 2016

Footnotes

[1] One exception to this rule is that any adviser located in the state of Wyoming is subject to federal registration requirements because Wyoming does not regulate investment advisers.  Therefore, in Wyoming, all investment advisers, regardless of their size, are subject to the registration requirements of the Federal Investment Advisers Act of 1940 unless they qualify for one of the federal exemptions. However, after July 1, 2017, this will no longer be the case, as a new version of Wyoming’s Uniform Securities Act, which will regulate investment advisers, will take effect.

[2] A “qualified client” is defined as an individual or company that has at least $1 million under the management with the investment adviser or has a net worth (together with assets held jointly with an individual’s spouse) of more than $2.1 million, not counting an individual’s primary residence. In addition, officers of the fund adviser, as well as employees that are involved in the investment activities of the fund adviser, are also considered qualified clients.


© 2011-2016 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.