The Massachusetts Securities Division (the “Division”) has adopted new regulations related to the registration of investment advisers. The new regulations are effective as of February 3, 2012, but will not be enforced by the Division until August 3, 2012.

The regulations, which were adopted in response to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) passed by Congress in July 2010, include the following key provisions: (i) substantial changes to the definition of “institutional buyer”; (ii) the establishment of a private fund adviser exemption from registration; and (iii) amendments to the requirements for advisers with discretion over, or custody of, client funds.

Change to the Definition of Institutional Buyer

Under the new regulations, the exemption relied on by most investment advisers to private funds is effectively removed. Previously, an adviser whose only clients were “institutional buyers”, which was defined to include a pooled investment vehicle in which all investors were accredited investors, and each of whom invested a minimum of $50,000, was excluded from the definition of an investment adviser under Massachusetts law. The new regulation now specifies that this definition applies only to funds which were not only in existence prior to February 3, 2012, but also ceased to accept any new beneficial owners as of such date. This grandfathering provision therefore permits existing funds to continue to operate in reliance on the exemption, but only if they do not accept any new investors. Additional investments into the fund from existing investors are permitted.

Please see full article below for more information.