California Abandons Proposal of Investment Manager Registration Rule

The California Department of Corporations shelved a proposed amendment requiring certain California investors to register.

The proposed amendment was introduced last October to Rule 260.204.9, which exempts from registration any person who is not publicly an investment adviser; has few than 15 clients; has assets under management of $25 million or more; or works for venture capital companies.

The proposed amendment would have limited the registration exemption to advisers who work for venture capital companies. All other advisers would have been required to register with the Department of Corporations or the Securities and Exchange and Commission.

The Department’s proposal was an attempt to require the registration of hedge fund managers who are no longer subject to federal regulation, said a news alert from Bingham McCutchen law firm. The withdrawal of the amendment means California will remain one of the few states (along with New York and Connecticut) in which most hedge fund and private equity fund advisers located or doing business within its borders are not required to be registered with that state’s securities regulator.

“After a review of the comments received during the public comment period, further consideration of the rulemaking action, and in light of the ongoing actions by federal regulators, the California Corporations Commissioner has determined that the proposed amendment is premature at this time,” according to a statement from the department on Thursday, reported in HedgeWorld.