In June 2014, the Washington State Department of Financial Institutions, Securities Division amended the rules applicable to investment advisers in the state of Washington in Chapter 460-24A of the Washington Administrative Code (“Adviser Rules”). The amendments become effective on July 13, 2014. Notably, the amendments provide for two new exemptions from Washington state investment adviser registration requirements that relate to the changes to the federal registration regime following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Generally, under the first new exemption, investment advisers that solely manage “qualifying private funds” (“private fund advisers”) are exempt from adviser registration in Washington. For example, managers of hedge, private equity and real estate funds may rely on this exemption if all requirements of the exemption are satisfied (including that the manager does not have any managed or separate account clients). Significantly, however, the term “qualifying private fund” for purposes of this exemption does not include private funds that rely on the exception from the definition of “investment company” under Section 3(c)(1) (“3(c)(1) Funds”) of the U.S. Investment Company Act of 1940, as amended (“1940 Act”).  In other words, private fund advisers to 3(c)(1) Funds (i.e., funds with 100 or fewer investors who are exclusively or primarily “accredited investors” as defined in Regulation D under the Securities Act of 1933, as amended) generally would be required to register in Washington, even though they would be exempt from registration with the U.S. Securities and Exchange Commission (“SEC”) under the federal private fund adviser exemption (assuming that all requirements of such exemption are satisfied, including the requirement that the adviser manage assets of less than $150 million). This new exemption generally would apply, however, to advisers that only manage funds that rely on Section 3(c)(7) of the 1940 Act (i.e., funds whose investors consist solely of qualified purchasers).
The second new exemption covers advisers of venture capital funds that are exempt from SEC registration based on the federal exemption for venture capital fund advisers (pursuant to Section 203(l) of the Advisers Act and SEC Rule 203(l)-1 under the Advisers Act). Under this new provision, a venture capital fund adviser is exempt from registration in Washington even if the venture fund that it manages is a 3(c)(1) Fund (assuming that all requirements of the exemption are satisfied). This new exemption should help to enhance venture capital fund formation in Washington state.
The amendments also add new rules applicable to registered advisers concerning proxy voting, advisory contracts and compliance policies and procedures. In addition, the amendments provide for a number of important changes to certain provisions of the Adviser Rules, including the rules regarding custody, financial reporting requirements, unethical practices and books and records.
 Conversely, the definition of “qualifying private fund” in Rule 203(m)-1 under the U.S. Investment Advisers Act of 1940, as amended (“Advisers Act”), includes 3(c)(1) Funds.
 Other than managers of venture capital funds that are exempted under the second new exemption contained in the amended Adviser Rules, as described below.