RIA Compliance Blog
Colorado is the ninth state to adopt a private fund adviser exemption by rule. The exemption became effective on March 30, 2012. The other states that have created similar rules are California, Indiana, Maine, Massachusetts, Michigan, Rhode Island, Virginia, and Wisconsin, most of which we have already blogged about.
The Colorado rule exempts investment advisers who manage one or more “venture capital funds,” as defined by Rule 203(l)-1 under the Investment Advisers Act of 1940 (“Advisers Act”), and who comply with the SEC Rule 204-4 reporting requirements. Investment advisers that are relying on this exemption will not be required to file the SEC Rule 204-4 reports with the Colorado Securities Commissioner. The rule also incorporates by reference the “grandfather” provision in Rule 203(l)-1(b) under the Advisers Act. Similar to the rules adopted in other states, it also exempts investment adviser representatives who are employed by or associated with an investment adviser that is already exempt under a private fund exemption. Finally, any investment adviser who is subject to disqualification under the “bad boy” provisions in Rule 262 of SEC Regulation A will not be entitled to the exemption.
Colorado’s exemption differs from the other states’ exemptions because it includes two other categories of investment advisers that may qualify for the exemption. First, an investment adviser to a “family office” is exempt. “Family office” is defined in Rule 202(a)(11)(G)-1 under the Advisers Act as a company, including directors, managers, employees, trustees, partners, and members, that has no clients who are not family clients, is wholly owned by family clients and is exclusively controlled by one or more family members, and does not hold itself out as a public investment adviser.
Second, the Colorado rule exempts any investment adviser that is a “foreign private adviser.” A “foreign private adviser” is defined in Section 202(a)(3) of the Advisers Act and Rule 202(a)(30)-1 under the Advisers Act as an investment adviser that
- Has no place of business in the United States;
- Has in total, fewer than 15 clients and investors in the U.S. in private funds;
- Has less than $25 million in assets under management attributable to U.S. clients;
- Does not hold himself/herself out publicly as an investment adviser; and
- Does not advise registered investment companies or registered business development companies.
We have previously discussed the definition of “foreign private advisers” and the SEC registration exemptions in New Registration Requirements for Non-U.S. Advisers.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our regulatory practice group assists financial service providers with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules.