3 CCR 704-1-51-4.11(IA) - Licensing Exemption for Investment Advisers to Private Funds

A. Definitions. For purposes of this regulation, the following definitions shall apply:

1. "Value of primary residence" means the fair market value of a person's primary residence, subtracted by the amount of debt secured by the property up to its fair market value.

2. "Private fund adviser" means an investment adviser who provides advice solely to one or more qualifying private funds.

3. "Qualifying private fund" means a private fund that meets the definition of a qualifying private fund in SEC Rule 203(m)-1, 17 C.F.R. 275.203(m)-1.

4. "3(c)(1) fund" means a qualifying private fund that is eligible for the exclusion from the definition of an investment company under section 3(c)(1) of the Investment Company Act of 1940, 15 U.S.C. 80a -3(c)(1).

5. "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.

B. Exemption for private fund advisers. Subject to the additional requirements of paragraph (c) below, a private fund adviser shall be exempt from the licensing requirements of Section 11-51-401 (1.5) if the private fund adviser satisfies each of the following conditions:

1. neither the private fund adviser nor any of its advisory affiliates are subject to an event that would disqualify an issuer under Rule 506(d)(1) of SEC Regulation D, 17 C.F.R. § 230.506(d)(1);

2. the private fund adviser files with the state 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 C.F.R. § 275.204-4; and

3. the private fund adviser pays the fees prescribed by the Securities Commissioner.

C. Additional requirements for private fund advisers to certain 3(c)(1) funds. In order to qualify for the exemption described in paragraph (b) of this regulation, a private fund adviser who advises at least one (3)(c)(1) fund that is not a venture capital fund shall, in addition to satisfying each of the conditions specified in paragraphs (b)(1) through (b)(3), comply with the following requirements:

1. The private fund adviser shall advise only those 3(c)(1) funds (other than venture capital funds) whose outstanding securities (other than short-term paper) are beneficially owned entirely by persons who, after deducting the value of the primary residence from the person's net worth, would each meet the definition of a qualified client in SEC Rule 205-3, 17 C.F.R. § 275.205-3, at the time the securities are purchased from the issuer;

2. At the time of purchase, the private fund adviser shall disclose the following in writing to each beneficial owner of a 3(c)(1) fund that is not a venture capital fund:

a. all services, if any, to be provided to individual beneficial owners;

b. all duties, if any, the investment adviser owes to the beneficial owners; and

c. any other material information affecting the rights or responsibilities of the beneficial owners.

3. The private fund adviser shall obtain on an annual basis audited financial statements of each 3(c)(1) fund that is not a venture capital fund, and shall deliver a copy of such audited financial statements to each beneficial owner of the fund.

D. Federal covered investment advisers. If a private fund adviser is licensed with the Securities and Exchange Commission, the adviser shall not be eligible for this exemption and shall comply with the state notice filing requirements applicable to federal covered investment advisers in Section 11-51-401 (1.6)

E. Investment adviser representatives. A person is exempt from the licensing requirements of Section 11-51-403 if he or she is employed by or associated with an investment adviser that is exempt from licensing in this state pursuant to this regulation and does not otherwise act as an investment adviser representative.

F. Electronic filing. The report filings described in paragraph (B)(2) above shall be made electronically through the IARD. A report shall be deemed filed when the report and the fee prescribed by the Securities Commissioner are filed and accepted by the IARD on the state's behalf.

G. Transition. An investment adviser who becomes ineligible for the exemption provided by this Rule must comply with all applicable laws and Rules requiring licensing or notice filing within ninety (90) days from the date the investment adviser's eligibility for this exemption ceases.

H. Waiver Authority with Respect to Statutory Disqualification. Paragraph (B)(1) shall not apply upon a showing of good cause and without prejudice to any other action of the Colorado Securities Commissioner, if the Securities Commissioner determines that it is not necessary under the circumstances that an exemption be denied.

Notes

3 CCR 704-1-51-4.11(IA)

38 CR 01, January 10, 2015, effective 1/30/2015 38 CR 08, April 25, 2015, effective 6/1/2015 38 CR 18, September 25, 2015, effective 10/15/2015 39 CR 01, January 10, 2016, effective 1/30/2016 40 CR 01, January 10, 2017, effective 1/30/2017 40 CR 12, June 25, 2017, effective 7/15/2017 41 CR 13, July 10, 2018, effective 7/31/2018 43 CR 05, March 10, 2020, effective 3/30/2020 46 CR 05, March 10, 2023, effective 3/30/2023