As it previously signaled it would do, on June 14, 2016, the SEC issued an Order (available here) increasing the net worth threshold for qualification as a “qualified client” under Rule 205-3 under the Advisers Act from $2 million to $2.1 million (the SEC did not adjust the assets under management of the adviser threshold, which remains at $1 million). This is the Rule that permits registered investment advisers (and their affiliates) to charge and receive capital gains-based fees, including performance fees characterized as carried interest or promote interest payments.

The change becomes effective on Aug. 15, 2016, although the Order indicates that the increase will not be applied retroactively to contractual relationships entered into prior to that date (provided the transition conditions of Rule 205-3 are met). Registered investment advisers who charge such fees, including investment advisers sponsoring or otherwise affiliated with private fund offerings that anticipate holding one or more closings on or after August 15, 2016, should consult with their counsel or contact their Greenberg Traurig attorney assisting them with regulatory and/or fund formation matters now to begin the process of updating the necessary documentation and compliance procedures.

Michael Feldman