Massachusetts Re-Proposes Registration Rule for 3(c)(1) Fund Managers
The Massachusetts Securities Division has re-proposed its registration rule, which would require registration of advisers to 3(c)(1) fund unless all investors satisfied the”qualified client” definition under 205-3 of the Advisers Act. The previous proposal would have only exempted advisers to 3(c)(7) funds and venture capital funds. In addition to filing reports on Form ADV and paying certain fees, exempt reporting advisers to 3(c)(1) funds would be required to make certain disclosures and deliver audited fund financial statements to investors. The proposed rule would require all investors to satisfy Rule 205-3 ($1.5 Million in net worth or $750,000 invested) after excluding the value of such investor’s personal residence.
OUR TAKE: This proposal is relevant if (i) you are an adviser in Massachusetts, (ii) you advise 3(c)(1) funds, and (iii) total assets in private funds are less than $150 Million. We expect other states to require all 3(c)(1) managers to register (per the NASAA model rule) or offer this type of limited exemption.