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Are there any exemptions to the registration requirements?

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Yes, there are several exemptions to registration requirements but for purposes of this FAQ, we are assuming the private fund adviser is not required to register at the state level and focusing on the three passed in connection with the private fund adviser requirement: (1) venture capital fund advisers, (2) foreign private advisers, and (3) private fund advisers with less than $150 million in assets under management.

To qualify for the venture capital fund exemption, a private fund must (1) hold no more than 20 percent of the fund’s capital in commitments obtained on the secondary market (other than short-term holdings); (2) limit leverage to short-term borrowing; (3) not offer redemption or other liquidation rights to investors; (4) hold itself out as pursuing a venture capital strategy; and (5) not currently be registered under the Investment Company Act of 1940 and not have elected to be traded as a business development company. There is also a grandfathering provision that exempts any pre-existing fund as a venture capital fund if the fund represents itself as one that pursues venture capital strategies, has sold securities to one or more investors before December 31, 2010, and has accepted all capital commitments by July 21, 2011.

Investment advisers qualify for the foreign private adviser exemption if the adviser has no place of business in the U.S., has fewer than 15 clients who are residents of the U.S. or are investors in the U.S. in private funds advised by the adviser, has less than $25 million in total assets under management from U.S. clients and investors, and does not hold itself out generally to the public in the United States as an investment adviser nor act as an investment adviser to a registered investment company or as a business development company.

To qualify for the private fund adviser with less than $150 million in assets under management exemption, an adviser may advise an unlimited number of qualifying private funds so long as the total value of the assets under management is less than $150 million. Qualifying private fund means any private fund that is not registered under section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a–8) and has not elected to be treated as a business development company pursuant to section 54 of that Act (15 U.S.C. 80a–53). For purposes of this section, an investment adviser may treat as a private fund an issuer that qualifies for an exclusion from the definition of an “investment company,” as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a–3), in addition to those provided by section 3(c)(1) or 3(c)(7) of that Act (15 U.S.C. 80a–3(c)(1) or 15 U.S.C. 80a–3(c)(7)), provided that the investment adviser treats the issuer as a private fund under the Act (15 U.S.C. 80b) and the rules thereunder for all purposes. However, if an adviser has one or more clients that are not private funds, then they are not eligible for this exemption. This exemption is available to foreign advisers if all of the adviser’s U.S. clients are private funds and the amount of funds it manages for U.S. clients is less than $150 million.

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