Proposed California Private Fund Adviser Exemption and Temporary Exemption Extension


Proposed Exemption

On December 15, 2011, the California Commissioner of Corporations (the “Commissioner”) proposed to amend Section 260.204.9 of Title 10 of the California Code of Regulations to provide an exemption from state registration for private fund advisers (the “Proposed Exemption”).[1] Advisers relying on the Proposed Exemption would be required to file reports with the California Commissioner of Financial Institutions, but would not be required to undergo the lengthy process of certification by the Commissioner, which generally takes from ninety to 120 days. We are pleased that the Proposed Exemption generally follows our recommendations in the comment letter we submitted to the Commissioner in December 2010, a copy of which is attached as Exhibit A.

Extension of Temporary Exemption

As discussed in our prior letters, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) repealed the federal “private adviser” exemption from registration as an investment adviser (the “Repealed Exemption”) under the Investment Advisers Act of 1940 (the “Advisers Act”) and created a new exemption available to advisers to private funds (the “Federal Exemption”). California also has a private adviser exemption (the “Temporary Exemption”), which is similar to the Repealed Exemption in that it generally applies to an investment adviser that does not hold itself out to the public as an investment adviser and has fewer than fifteen clients, but is available only to investment advisers that manage at least $25,000,000. This Temporary Exemption expires on April 17, 2012. The Proposed Exemption would further extend the Temporary Exemption through June 28, 2012. Comments on the Proposed Exemption must be submitted to the Commissioner by February 20, 2012.

The Proposed Exemption

General Requirements

The Proposed Exemption would exempt a private fund adviser from California investment adviser registration if the private fund adviser satisfies three criteria. First, the private fund adviser must file with the California Commissioner of Financial Institutions via the IARD all reports required of an exempt reporting adviser under the SEC’s regime. Those reports are filed on Part 1 of Form ADV and include only specific sections relating to the private fund adviser’s organizational and operational information. Second, the private fund adviser must pay the application and renewal fees required of registered advisers. Third, neither the private fund adviser nor its advisory affiliates may have committed any disqualifying act,2 or have done any of the acts or satisfied any of the circumstances providing grounds for the Commissioner to deny, suspend or revoke its or their investment adviser certificate.3 A private fund adviser that registers with the SEC would not be eligible for the proposed exemption and must comply with applicable California notice filing requirements.

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[1] The Commissioner’s Notice, Text of the Proposal, and Initial Statement of Reasons relating to the Proposal are available at