California Extends Emergency Private Adviser Exemption

March 28, 2012 § 2 Comments

The California Department of Corporations this week renewed its emergency rules to extend the period in which certain fund managers can rely on the existing pre-Dodd-Frank “private adviser” exemption from California investment adviser registration.

Before Dodd-Frank, federal rules exempted from registration investment advisers who had fewer than 15 clients (a fund equals a single client), did not hold themselves out to the public as investment advisers and did not advise registered investment companies–the so-called “private adviser” exemption. California’s own rules tracked the federal exemption for advisers with more than $25 million under management or advisers to venture capital funds.

Dodd-Frank created a new regulatory regime for private fund advisers and increased the threshold AUM for federal investment adviser registration. After Dodd-Frank, the private adviser exemption disappeared and managers are exempt from federal registration only if they (i) advise only funds exempt from Investment Company Act registration under Section 3(c)(1) or 3(c)(7); (ii) advise only venture capital funds; or (iii) manage less than $150 million.

States have been scrambling to adopt new rules to reflect Dodd-Frank’s new registration scheme. California proposed final rules that would create a new private fund adviser exemption from state investment adviser registration. Pending adoption of the final rules, the Department of Corporations adopted emergency measures to keep in place its pre-Dodd-Frank private adviser exemption.

California’s pre-existing private adviser exemption has again been renewed on an emergency basis. This means that fund managers meeting the following conditions will remain exempt from state investment adviser registration:

  • do not hold themselves out to the public as investment advisers;
  • had fewer than 15 clients (funds count as a single client) in the last 12 months;
  • do not advise any registered investment companies; and
  • either have at least $25 million AUM or advise only venture capital companies.

Note that once fund managers reach $100 million AUM they become subject to the federal, not state, investment adviser registration requirements.

For existing California fund managers who have relied on the private adviser exemption, you have been given additional time to prepare for registration or to qualify for the new private fund adviser exemption. The current extension runs until mid-July 2012 to give the DoC time to finalize and adopt its new private fund adviser exemption. Given the pace of past DoC rule-making, further extensions are possible, if not likely.



Jack G. Martel is the author of Investment Adviser Law Blog which is devoted to providing information and discussion of interest to investment advisers, private fund managers and others in the financial management industry. Jack is a partner in Ragghianti | Freitas LLP. He has over fifteen years experience in general business and securities transactions with a focus on assisting investment advisers, fund sponsors and managers in all manner of legal, regulatory and compliance issues. Jack can be reached at 415.453.9433.


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