On August 27, 2012, the California Department of Corporations adopted a new Rule 206.204.9, which was intended to encourage capital investment in private investment funds by providing an exemption from investment adviser registration requirements for the managers of these funds. However, the new Rule imposes so many new requirements that it may be a shock to managers of many private investment funds, particularly real estate related investment funds. This article describes what types of private investment funds are subject to the new Rule, what requirements apply under the new Rule, and some of the special issues that affect funds that invest in real estate assets as a result of this new Rule.
The new Rule applies to “private fund advisers”. The new Rule provides that “private fund advisers” are exempt from registration as investment advisers under California law if they comply with the restrictions and requirements of the Rule. Private fund advisers are persons who provide advice solely to one or more “qualifying private funds,” which are defined as funds that qualify for the exclusion from the definition of an investment company under one or more of sections 3(c)(1), 3(c)(5) and 3(c)(7) of the Investment Company Act of 1940. In order to determine if a manager of an investment fund is required to comply with the new Rule, the manager first has to determine if the manager is an adviser to a “qualifying private fund.” Continue reading →