We previously reported that there was proposed legislation making its way through the Minnesota legislature that contained a number of amendments to the securities laws relating to investment advisers and applying a new layer of regulation for investment adviser representatives. After receiving input from a number of constituencies, the committees involved have offered changes to the proposed legislation. A copy of the full as-revised proposed legislation is not yet available, but here is a summary of the most recent changes to the proposed legislation.
Three types of changes can be briefly summarized: 1) changes that do not affect the concept of the new legislation but are only intended to clarify; 2) the elimination of duplicative definitions; and 3) the elimination of provisions requiring the payment of fees in connection with investment adviser representative registration.
The House bill had stricken “investment adviser representative” from the list of persons who are excluded from the definition of “investment adviser.” Since this would have had the unintended consequence of subjecting investment adviser representatives to all of the provisions of Chapter 80A applicable to investment advisers, the stricken language was reinstated.
Current law exempts investment advisers from the registration statutes if their only clients in Minnesota are certain defined subsets of persons. A new change will eliminate institutional investors from this list. As a result, investment advisers (and newly defined investment adviser representatives) whose only clients in Minnesota are institutional investors will not be exempt from registration. In addition, the item “any other person exempted by rule adopted or order issued under this chapter” was eliminated from the list of persons exempt from investment adviser (and now investment adviser representative) registration.
The new legislation provides that an investment adviser to a private fund (other than a venture capital fund) is exempt from the state investment adviser registration requirements if it’s only clients are certain specified types of 3(c)(1) funds (“qualified clients”) which are defined in new 80A.58(c)(1). A change to the new legislation now includes a grandfathering provision that makes this exemption available for an investment adviser to a private fund (other than a venture capital fund) that has one or more beneficial owners who are not qualified clients, provided that the fund existed prior to the effective date of the new legislation, the fund ceases to accept beneficial owners who are not “qualified clients,” and the investment adviser provides certain specified disclosures and audited financial statements to all beneficial owners of the fund.
Section 80A.66 currently contains record keeping and financial reporting requirements for investment advisers and broker-dealers. The proposed legislation added new subsections relating to record keeping and financial reporting requirements applicable to investment advisers to private funds. The proposed legislation also contained a provision giving the administrator the ability to amend existing rules if “the requirements of this section [and related rules] do not fully comport with the existing provisions of federal law.” This grant of authority to the administrator has been removed in the most current form of the proposed legislation.