Many investment advisers to private funds have been, and wish to remain, exempt from investment-adviser registration in Texas.  Before March 31, 2014, an adviser to a private fund could be exempt by complying with former Rule 109.6 of the Texas State Securities Board.  Since March 31, 2014, the effective date of the Texas State Securities Board’s amendments to Rule 109.6 and adoption of new Rule 139.23 (the “Effective Date”), such an adviser could remain exempt either by:

  • relying on the “grandfathering” provision of amended Rule 109.6; or
  • satisfying the conditions of new Rule 139.23 as an “exempt reporting adviser.”

In two posts, George Lee and Rick Tulli address sets of questions that have arisen since the Effective Date regarding:

  • the ability of an adviser to a private fund to remain exempt under the “grandfathering” provision of amended Rule 109.6 if the fund accepts additional investment after the Effective Date from any existing  investor who originally invested in the fund before the Effective Date (an “Existing Investor”); and
  • the requirement that Existing Investors in a 3(c)(1) hedge fund be “qualified clients” in order for an adviser to the fund to transition to reliance on new Rule 139.23 after the Effective Date.