Change in Exclusion/Exemption Requirements for Hedge Funds and other "Private Funds"

Changes to the "Institutional Buyer" Exclusion in 950 CMR 12.205(1)(a)(6)

Delete the current language of 950 CMR 12.205(1)(a)(6) and replace with the following:

6. Institutional Buyer shall include any of the following:

a. An organization described in Section 501(c)(3) of the Internal Revenue Code with a securities portfolio of more than $25 million.

b. An investing entity:

i. whose only investors are accredited investors as defined in Rule 501(a) under the Securities Act of 1933 (17 CFR 230.501(a)) each of whom has invested a minimum of $50,000; and

ii. which existed prior to [effective date]; and

iii. which, as of [effective date], ceased to accept beneficial owners or additional funds for existing investors.

c. An investing entity whose only investors are financial institutions and institutional buyers as set forth in M.G.L. c. 110A, § 401(m) and 950 CMR 12.205(1)(a)6.a. and b.

Registration Exemption for Exempt Reporting Advisers

Insert a new subsection (c) into 950 CMR 12.205(2) as follows:

(c) Registration Exemption for Exempt Reporting Advisers.

1. An investment adviser who provides advice solely to one or more 3(c)(7) funds or venture capital funds shall be exempt from the registration requirements of Section 201 of the Act if the investment adviser satisfies the following conditions:

a. Neither the investment adviser nor any of its advisory affiliates are subject to a disqualification as described in Rule 262 of SEC Regulation A, Section of title 17 CFR § 230.262.

b. The adviser files with the Commonwealth each report and amendment thereto that an exempt reporting adviser is required to file with the Securities and Exchange Commission pursuant to SEC Rule 204-4, 17 CFR 275.204-4.

c. The adviser pays the fee specified in 950 CMR 12.205(2)(b)1.b.

2. A Federal Covered Adviser shall not be eligible for this exemption and shall comply with the state notice filing requirements applicable to such advisers pursuant to 950 CMR 12.205(2)(b).

3. An investment adviser representative is exempt from the registration requirements of 950 CMR 12.205(2)(d) if registration would be required solely because of employment or association with an adviser exempt from registration under this subsection (c).

4. The report filings described in paragraph 1.b. above shall be made electronically through the IARD. A report shall be deemed filed when the report required by 950 CMR 12.205(2)(a)(1) and the fee are filed and accepted by the IARD on the state's behalf.

5. This exemption shall not be available to any investment adviser when one or more of the investment adviser's private funds accepts investments from non-natural persons for the purposes of evading registration or the conditions or limitation explicitly stated in this section.

6. Definitions:

a. "Private fund" means an issuer that would be an investment company as defined in section 3 of the Investment Company Act of 1940, 15 U.S.C. 80a-3, but for sections 3(c)(1) or 3(c)(7).

b. "3(c)(7) fund" means a private fund that is excluded from the definition of an investment company under section 3(c)(7) of the Investment Company Act of 1940, 15 U.S.C. 80a-3(c)(7).

c. "Venture capital fund" means a private fund that meets the definition of a venture capital fund in SEC Rule 203(l)-1, 17 C.F.R. § 275.203(l)-1.

Renumber the current subsection (c) of 950 CMR 12.205(2) as subsection (d) Registration of Investment Adviser Representatives.

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