The Massachusetts Securities Division, under the direction of Secretary Galvin, has proposed new regulations relating to the regulation of investment advisers, including hedge fund managers. The proposed regulations are being issued in main part in response to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) passed by Congress in July 2010 and are intended to “promote consistency” between Massachusetts state requirements for registration and regulation of investment advisers and the federal requirements following passage of the Dodd-Frank Act.

Change in Exclusion/Exemption Requirements

Currently, Massachusetts exempts from registration any investment adviser whose only clients are “institutional buyers.” Under the current regulations, an “institutional buyer” is defined to include: (a) an organization described in Section 501(c)(3) of the Internal Revenue Code with a securities portfolio of more than $25 million; (b) a fund whose only investors are accredited investors, each of whom has invested a minimum of $50,000 in such fund; or (c) an entity whose only investors are financial institutions and institutional buyers as set forth in applicable laws and regulations. Massachusetts based investment advisers to hedge funds and other pooled vehicles often rely on section (b) of this definition and remain exempt from registration.