The California Corporations Commissioner has amended section 260.204.9 of Title 10 of the California Code of Regulations (10 C.C.R. section 260.204.9) (the “Amended Rule”) to provide for an exemption for certain advisers to “private funds,” provided they (1) have not violated securities laws, (2) file periodic reports with the California Department of Corporations, (3) pay the existing investment adviser registration and renewal fees, and (4) comply with additional safeguards when advising funds organized under section 3(c)(1) and/or section 3(c)(5) of the Investment Company Act of 1940, as amended (the “Investment Company Act”) (these additional safeguards do not apply to funds organized under section 3(c)(7) of the Investment Company Act). The Amended Rule is effective as of August 27, 2012 (the “Effective Date”).
The initial report as referenced in clause (2) above and as further described below must be filed no later than 60 days from the Effective Date (i.e., no later than October 26, 2012).
Prior Exemption -
Prior to The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), under section 203(b)(3) of the Investment Adviser Act of 1940, as amended (the “Advisers Act”), any investment adviser who (1) had fewer than 15 clients and (2) who neither held itself out generally to the public as an investment adviser nor acted as an investment adviser to any investment company, was exempted from registration with the Securities and Exchange Commission (“SEC”) (the so-called “Private Adviser Exemption”). Similarly, in California, prior to the Amended Rule, investment advisers that were exempt under section 203(b)(3) of the Advisers Act were exempt from the California investment adviser licensing requirements if they (1) have assets under management of not less than $25 million or (2) exclusively advise “venture capital companies,” as that term is defined in the prior version of section 260.204.9.
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