Private funds, such as hedge funds, private equity funds, and venture capital funds, are governed by a host of intersecting federal laws that impact who can invest in these fund, including the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, and the Investment Company Act of 1940. This post provides prospective and existing private fund managers with a basic understanding of the primary categories of investors and why understanding these categories is essential in structuring and marketing a fund.
Qualified Purchaser Archives
Deciphering the SEC’s New Definition of a “Venture Capital Fund”: Part 10 – What about existing funds?
This is the tenth post in a series exploring recent SEC regulations that define the term “venture capital fund” for the purposes of determining whether a fund’s manager is exempt from SEC registration requirements under the Dodd-Frank Act.
Previously in the first installment of this series, I provided a general overview of how the SEC has defined the term “venture capital fund.” A private fund manager that solely advises venture capital funds (as defined in SEC regulations) qualifies for an exemption from investment adviser registration under the Investment Advisers Act. In my subsequent posts, I described the requirements private funds must meet in order to qualify for this exemption. The requirements are quite specific, and therefore, many existing funds would be required to register, which would be an unanticipated consequence for these fund managers that relied on then-current law to structure their funds. Luckily, the SEC has provided grandfathering provisions in the regulations which exempt funds that raised their capital prior to the effectiveness of the new regulations. In this post, I will discuss such how grandfathering provisions work. [Read more…]
Deciphering the SEC’s New Definition of a “Venture Capital Fund”: Part 9 – Private Funds Only
This is the ninth post in a series exploring recent SEC regulations that define the term “venture capital fund” for the purposes of determining whether a fund’s manager is exempt from SEC registration requirements under the Dodd-Frank Act.
Previously in the first installment of this series, I provided a general overview of how the SEC has defined the term “venture capital fund.” A private fund manager that solely advises venture capital funds (as defined in SEC regulations) qualifies for an exemption from investment adviser registration under the Investment Advisers Act. There are five elements to the definition. The first element is that the fund must represent to investors and potential investors that it pursues a venture capital strategy. The second element is that no more than 20% of the fund’s total assets (including committed but not yet invested capital) can be invested in assets that are not “qualifying investments” or “short term holdings.” The third element is the fund cannot borrow in excess of 15 percent of the fund’s aggregate capital contributions and uncalled committed capital. The fourth element is that the fund cannot provide its investors with redemption rights, except in “extraordinary circumstances.” In this post, I will discuss the fifth and final element of the definition, which prohibits a VC fund from registering as an investment company. [Read more…]