Effective as of January 3, 2020, most Michigan-based fund managers of angel funds, venture capital funds and certain other private funds must begin electronically submitting reports on Form ADV as an “exempt reporting adviser” to the State of Michigan under new administrative rules adodpted under the Michigan Uniform Securities Act, according to guidance recently issued by the Department of Licensing and Regulatory Affairs. The annual filing, as well as other ongoing requirements, are conditions to Michigan’s “private fund adviser” exemption from state investment adviser registration.
Previously, there were no Michigan requirements and only those private fund managers with $25 million or more in fund assets under management were required to electronically file these Form ADV reports with the Securities and Exchange Commission (SEC) as an “exempt reporting adviser” under SEC Rule 204-4. Michigan’s new private fund adviser rule applies to investment advisers of angel, venture capital and other funds having any amount of fund assets under management up to $150 million, when SEC investment adviser registration becomes required under federal law. Michigan’s rule requires only those portions of the Form ADV applicable to an “exempt reporting adviser” to be filed, as specified in the online form’s instructions. The truncated Form ADV must be filed online using the Investment Adviser Registration Depository (IARD) System.
Michigan’s rule also requires that any private fund adviser subject to the reporting requirement comply with the “bad actor” disqualifications of SEC Regulation D, not only at the time interests in the fund are sold, but on an ongoing basis, in order to maintain Michigan’s exemption from investment adviser registration. For certain private fund advisers, the rule also includes a requirement, among others, to obtain and provide to its investors annually audited financial statements.
The application of the new state reporting requirement has been subject to uncertainty. A request for clarification was submitted months ago, but LARA only recently issued guidance that the rule applies to private fund advisers relying on the SEC’s “small adviser” exemption from federal registration.
If you have questions about the new rules and are unsure if state reporting or other requirements apply to you, please contact any member of our Funds and Investment Services Practice Group.