On February 14, 2012, the Virginia Division of Securities and Retail Franchising (the “Securities Division”) proposed the adoption of a new rule exempting certain managers to certain private funds based on the North American Securities Administrators Association (“NASAA”) model exemption for investment advisers solely to private funds. The new rule would exempt advisers to private funds excluded from the definition of investment company under Section 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940, as amended, provided the adviser (a) has not been subject to certain “bad boy” disqualifications ; (b) files Form ADV with the Securities Division as required for “exempt reporting advisers” as provided for under federal law; and (c) pays a notice filing fee of $250 to the Securities Division.
Additionally, in order for an adviser of a 3(c)(1) fund to qualify for the exemption all investors in such fund must be “qualified clients” as defined under the Investment Advisers Act of 1940 (namely, have a net worth of more than $2 million, excluding the value of their primary residence, or have more than $1 million under management with the adviser). The proposed rule contains a grandfathering provision allowing advisers currently exempt from registration under Virginia law to maintain such exemption provided they comply with the new reporting requirements and only accept “qualified clients” going forward. Virginia law currently has an exemption for advisers with fewer than 15 clients who advise only “corporation(s), general partnership(s), limited partnership(s), limited liability compan[ies], trust[s] or other legal organization[s]” with assets of more than $5 million. This exemption was temporarily extended on July 19, 2011, after the repeal of the 15 client exemption mandated by Dodd-Frank. The proposed rule has an anticipated effective date of Mary 1, 2012.
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