Earlier I had pointed out how a real
estate fund manager could be considered an investment adviser and have to
register with the SEC under the Investment Advisers Act.
In the Proposed
Changes to Form ADV published on November 19, the SEC has made it clear
that real estate funds are part of the mix. They have proposed
revisions to Form ADV that better deal with more private funds being covered by
the Investment Advisers Act.
In the proposed new
Schedule D to Form ADV, the SEC requires you to designate the type of
fund. If you are still wondering if a real estate fund might need to
register, look through the list of fund types:
Question 10: Type of Private Fund: For
purposes of this question the following definitions apply:
"Hedge fund" means any private fund that:
a. Has a performance fee or allocation calculated by taking
into account unrealized gains;
b. May borrow an amount in excess of one-half of its net asset value (including
any committed capital) or may have gross notional exposure in excess of twice
its net asset value (including any committed capital); or
c. May sell securities or other assets short.
A commodity pool is categorized as a hedge fund solely
for purposes of this question. For purposes of this definition, do not net long
and short positions. Include any borrowings or notional exposure of another person
that are guaranteed by the private fund or that the private fund may otherwise
be obligated to satisfy.
"Liquidity fund" means any private fund that seeks to
generate income by investing in a portfolio of short term obligations in order
to maintain a stable net asset value per unit or minimize principal volatility
"Private equity fund" means any private fund that is not
a hedge fund, liquidity fund, real estate fund, securitized asset fund, or
venture capital fund and does not provide investors with redemption rights in
the ordinary course.
"Real estate fund" means any private fund that is
not a hedge fund, that does not provide investors with redemption rights in the
ordinary course and that invests primarily in real estate and real estate
"Securitized asset fund" means any private fund that is
not a hedge fund and that issues asset backed securities and whose investors
are primarily debt-holders.
"Venture capital fund" means any private fund meeting the
definition of venture capital fund in rule 203(l)-1 under the Advisers Act.
"Other private fund" means any private fund that is not a
hedge fund, liquidity fund, private equity fund, real estate fund, securitized
asset fund, or venture capital fund.
"Real estate fund" made the list. I take that as a clear
sign that the SEC wants real estate fund managers to register under the
Investment Advisers Act.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.