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In addition, in 2013 the SEC also adopted Rule 506(d) of Regulation D under the
Securities Act which disqualifies securities offerings involving certain felons and other
‘bad actors’. As a result, issuers seeking to rely on Regulation D need to diligence
persons associated with the securities offering to ensure the issuer is not disqualified
from issuing its securities under Regulation D.
Investment Company Act
A non-U.S. private fund that seeks to admit U.S. persons generally will need to rely on
the exceptions to investment company status set forth in Sections 3(c)(1) and 3(c)(7)
of the Investment Company Act in order to avoid registration thereunder.
Under Section 3(c)(1), a non-U.S. fund must meet the following requirements:
(a) the outstanding securities of the fund must not be beneficially owned by more than
100 U.S. persons; and
(b) the fund must not make or propose to make a public offering of its securities in the
U.S.
For purposes of counting investors to avoid breaching the 100 U.S. person limit, it may
be necessary to “look through” to the underlying beneficial owners of certain investors
(e.g., entities that are formed for the purpose of investing in the private fund).
Under Section 3(c)(7), a non-U.S. fund must meet the following requirements:
(a) the fund must not make or propose to make a public offering of its securities in the
U.S.; and
(b) the U.S. beneficial owners must be limited to “qualified purchasers”.
“Qualified purchasers” include, for example, individuals who own at least US$5 million
in “investments” (as defined under the Investment Company Act) and entities that are
beneficially owned by qualified purchasers.
U.S. Investment Advisers Act of 1940
The two primary exemptions from registration that may be available to a Manager
seeking to avoid registering with the SEC as an investment adviser under the Advisers
Act are:
(a) ForeignPrivateAdviser Exemption.Toqualify,theManagermust: (i) have noplace of
business in the U.S.; (ii) have fewer than 15 clients and investors in the U.S. in private
funds advised by the Manager; (iii) have aggregate assets under management of
less than US$25 million attributable to clients in the U.S. including U.S. domiciled
private funds and U.S. investors in private funds advised by the Manager; (iv) not
hold itself out generally to the public in the U.S. as an investment adviser; and (v)
not advise registered investment companies or business development companies.
For purposes of counting investors to avoid breaching the 100 U.S. person
limit, it may be necessary to “look through” to the underlying beneficial owners
of certain investors (e.g., entities that are formed for the purpose of investing
in the private fund).