Funds

Is my fund required to be registered?

Funds must register with the SEC as “investment companies” under the 1940 Act or qualify for an exemption from registration. Private funds will generally avoid registration by satisfying the requirements of one of the following exemptions:

Section 3(c)(1) – The Private Investment Company Exclusion

Under Section 3(c)(1) of the 1940 Act, a fund is not required to register as an investment company if it does not offer its securities publicly, or sell its securities to more than 100 investors.  In determining the number of investors in a fund, the SEC may count a company as one investor, but will be required to “look through” that company and count all of the investors within that company towards the 100-investor limit if that company holds more than 10% of the fund’s securities or the SEC determines that the company is being used to circumvent the 100-investor exemption. As a general rule, if more than 40% of a company’s assets are invested in a fund, the SEC will presume that such company was formed with the purpose of avoiding regulation.  Similarly, the SEC will aggregate two funds managed by the same investment manager if the two funds are not materially different in investment styles or objectives.

For an offshore fund, the only investors that count toward the 100-investor limit for exemption are U.S. owners.  For any fund, “knowledgeable employees,” such as the fund manager and other executives that oversee the fund’s investments, are not counted towards the fund’s 100-investor limit.

Section 3(c)(7) – The Qualified Purchaser Fund Exclusion

A fund may sell its securities to more than 100 investors pursuant to the exemption in Section 3(c)(7) of the 1940 Act if all of the investors are “qualified purchasers,” and it is not making or proposing to make a public offering.

How do I register my fund?

In order to register a fund, you need to prepare and file (i) Form N-8A, and (ii) a registration statement (e.g., Form N-2).  The registration statement must contain information about the fund and its policies on certain significant matters, and must include the information and documents that would be filed in order to register the fund’s securities under the 1933 Act and the 1934 Act.