On January 12, 2012, the Massachusetts Securities Division adopted new rules for the registration of investment advisers solely to 3(c)(7), venture capital or 3(c)(1) funds, where all investors in the 3(c)(1) fund are “qualified clients”. The rules replace the existing exemption which allowed advisers to “institutional buyers” including private funds, such as hedge funds, in which each investor is accredited and has invested at least $50,000, to avoid registration. Additionally, the rules provide new disclosure and audit standards. Namely, all 3(c)(1) advisers must disclose the services and duties they provide or owe to their investors and any other rights or responsibilities of their investors. Each adviser to a 3(c)(1) fund must also obtain annually audited financial statements for each fund and provide such to investors. The new rules have a grandfathering provision for funds existing prior to February 3, 2012 provided they only accept “qualified clients” going forward and comply with the disclosure and audit requirements of the new rule.
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