Wednesday, July 27, 2011

Virginia Proposes Private Adviser Exemption

The current definition exclusion for investment advisers and federal covered advisers whose only clients are corporations, general partnerships and other entities with assets of at least $5 million would be proposed for repeal and replaced with an exemption for certain private advisers, to take effect September 2, 2011. Interested persons may submit written comments about the proposal to Joel H. Peck, State Corporation Commission, c/o Document Control Center, P.O. Box 2118, Richmond, Virginia, no later than August 29, 2011. A hearing will not take place unless the Virginia Corporation Commission receives public comments about why it should be held and why the proposal cannot be adopted by written comments alone.

As proposed, Investment advisers and federal covered advisers, as well their employed investment adviser representatives, whose only clients are corporations, general partnerships and other entities with assets of at least $5 million would be exempt from registration in Virginia if the clients receive investment advice based on the clients' (entities') investment objectives rather than on their shareholders', partners', beneficiaries' or members' individual investment objectives. Also, the investment advisers must: (1) have been exempt from registration under Section 203(b)(3) of the Investment Advisers Act of 1940 as of July 20, 2011; and (2) be subject to SEC Rule 203-1(e) allowing an exemption from SEC registration until March 30, 2012 for investment advisers formerly exempt by Section 203(b)(3) of the 1940 Act that would otherwise need to register with the SEC by July 21, 2011.


blog said...


I keep reading and rereading this proposal and I'm having a bit of difficulty understanding what they are getting at. I see 2 possible readings:

(1) VA is continuing the 15 client exemption for advisers of private funds whose value is greater than $5 million until March 30, 2012, after which they will need to register;
(2) VA is continuing this exemption forever. I.e. if on April 1, 2012, a fund manager manages $35 million in assets, they would be an exempt reporting adviser on the federal level and exempt completely on the state level. Alternatively, if they managed $20 million, they would be exempt on both the federal and state level and no form ADV would need to be filed at all.

Which interpretation do you take?


Jay Fishman said...

Hi Alex. Thanks for your comment.

It's quite possible that a combination of your (1) and (2) is the answer. However, as I'm not a day-to-day blue sky practitioner, I can't advise here.

But given the newness, complexity and importance of your comment, here are my A. and B. suggestions:

A. Locate and read the post from Connecticut in which the state released three administrative orders. Read particularly the summary of the first order in which SEC Rule 203(1)-e is discussed. There is also a link to the official text of the order. I think Virginia is taking the same approach as Connecticut but Connecticut more thoroughly explains the timeline.

B. Because your comment will be of interest to the blue sky community and you'll most likely receive responses from its members, I would run it by Alan Parness, the Chair of the ABA State Regulation of Securities Group and ask him to post it on the Blue Sky Listserv. Alan's email address is Alan may provide his own interpretion to you and, if he does, his interpretion will be a thoroughly researched and thought-out one.