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News January 17, 2011 Issue

NASAA Model Rule Targets Private Fund Advisers

NASAA (North American Securities Administrators Association) has proposed a model rule  aimed at roping in some of those private fund advisers that escaped registration at the federal level under the Dodd-Frank Act.

The model rule would provide for state registration of venture capital fund and private fund advisers with less than $150 million in assets under management (AUM) unless the fund(s) they manage are operated pursuant to the Investment Company Act section 3(c)(7) qualified purchaser exemption. Advisers to section 3(c)(1) funds, which avoid registration by maintaining 100 or fewer investors, would not be exempt.

Exempt 3(c)(7) fund advisers would still be required to submit notice filings with the states and pay any applicable fees.

While the Dodd-Frank Act generally exempted private and venture capital fund advisers from federal registration where their aggregate AUM is less than $150 million, these advisers must still submit reports to the SEC and also must maintain certain books and records.

The SEC recently proposed rules regarding these "exempt reporting advisers." The Investment Adviser Association observed that the NASAA model rule "would, in many respects, complement at the state level the treatment of private fund advisers at the federal level."

NASAA cautioned that its rule proposal is designed to follow certain provisions in the Dodd-Frank Act as implemented by the SEC, and, therefore, is contingent in many respects on how the SEC moves forward on implementation in this area. Consequently, said the NASAA release, "if the SEC makes significant alterations to its proposals NASAA may be required to reevaluate the provisions in any proposed model rule or rules."

Comments on the model rule are due January 24.