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From my discussions, many real estate fund managers are
still not sure if they are subject to registration under the Investment
Advisers Act. The definition of "private fund" can exclude many real estate
funds depending on the structure of their investments. I think the result is
that you end up under the federal level of registration and in the state level
of regulation. Many states are still trying to get their regulations to mesh
better with the changes coming from Dodd-Frank.
One of those is my home state of Massachusetts. Back
in April the Massachusetts Securities Division proposed changes to 950 CMR
12. 00 et. seq. that would alter the definition of institutional buyer
found at 950 CMR 12.205(1)(a)(6) and proposed an exemption for certain "private
fund" advisers. A public hearing was held on June 23, 2011. In light of the comments
and the SEC's changes in the regulatory framework since the original proposal,
the Securities Division has amended the proposed regulations and is now seeking
hearing is scheduled for December 6. That's going to be a tight time frame
for advisors that are trying navigate through the new regulatory framework and
face a mid-February filing deadline.
Currently, Massachusetts has an exemption from
registration for advisers who only clients are "institutional buyers."
An investing entity 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.
For a private fund manager, this was a great exemption
since their investors would need to be accredited investors. As long they kept
capital commitments at a minimum of $50, 000 they could usually take advantage
of this exemption.
regulations would phase out the use of the institutional buyer exemption
for new funds. The regulations would also create an exemption for private fund
advisers that is better aligned with the federal exemptions.
The regulations probably will not help real estate fund
advisers who are looking at state-level exemptions to avoid registration.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.
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